Americans are addicted to caffeine but not to Starbucks, it seems.
When Chicago writer Natalia Nebel steps out for an expresso, for instance, Starbucks no longer comes to mind, even though she lives within walking distance to two of the coffee chain's more than 17,000 U.S. stores.
"I used to go all the time and now I don't go anymore," said Nebel, 61, recalling her pre-COVID routine of setting up shop four days a week at a local Starbucks, finding it an enjoyable change of scenery and a comfortable spot to work. "I liked being around people in a different setting," Nebel told CBS MoneyWatch.
But Starbucks' appeal for Nebel faded along with the pandemic. "Once I stopped going, I didn't really miss it," she said, noting that she prefers the ambiance of the independent cafes in her Lincoln Park neighborhood.
"The whole concept got old. Starbucks started really feeling like corporate America in a way it hadn't before," she added.
Delaware resident Troy Turner also sees benefits to brewing at home, saying it's relatively easy, quick and far less expensive to make "significantly better coffee than anything you'd get at Starbucks."
The home barista community has gained traction online, with tutorials available on making coffee, noted Turner, 29, a leave and disability examiner who lives in Dover.
"A few years ago, when I was first getting into coffee, I was on the fence about Starbucks versus Dunkin' doughnuts, but I quickly got out of attending both places," said Turner, a self-described coffee enthusiast.
Rare drop in sales
The biggest coffee chain on the planet is losing ground with people around the globe, its first drop in quarterly revenue since 2020 recently showed. The slowdown in store traffic was particularly acute in the U.S., with same-store sales down 3% in the January through March period from a year ago.
Budget-conscious consumers are shelling out less on quick-service offerings, and that includes Starbucks, according to CEO Laxman Narasimhan.
"We continue to feel the impact of a more cautious consumer," he said on an earnings call last week.
"Many customers have been more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent," Narasimhan said. "We saw this materialize over the quarter as customers made the trade-offs, but being food away from home and food at home."
The company's strategy to reverse its fortunes involves modernizing its app and mobile payment options, expediting service, and revamping its menu to entice customers back, as per the company's spokesperson.
"The consumer is beginning to feel the pinch of tighter budgets, and Starbucks is one of those discretionary luxuries that individuals can easily forgo," remarked Neal Saunders, managing director, retail, at GlobalData.
Schultz emphasizes "obsessive focus"
The recent financial setback also triggered some unsolicited guidance from former Starbucks CEO Howard Schultz, who guided the company for many years during its global expansion.
"The stores demand an obsessive focus on the customer experience, from a merchant's perspective. The solution doesn't lie in data, but within the stores," Schultz penned on his LinkedIn profile on Monday. Schultz proposed that Starbucks should enhance its mobile ordering and payment application to restore it to the uplifting experience it was originally crafted to deliver. Although Schultz concluded his third tenure as CEO early last year, he remains one of the company's largest shareholders.
Schultz believes that Starbucks will bounce back, but it's "definitely not business as usual."
"We always value Howard's insights. The issues and possibilities he raises are the ones we are concentrating on. And similar to Howard, we have faith in Starbucks' long-term prosperity," a Starbucks representative responded to Schultz's comments.
The emphasis on seamless mobile/digital ordering and throughput in today's world raises customer experience flags,
stated Sean Dunlop, an analyst at MorningStar. If baristas are constantly operating at full capacity, it's difficult for them to shift their focus and ensure that each customer is having a truly unique experience - they simply don't have the capacity for it,
Dunlop explained.
When we look back at Starbucks' extensive history, the brand initially thrived on providing an experiential occasion for consumers,
noted David Tarantino, an analyst at Robert W. Baird. Customers would walk in, order their customized beverage, and engage in a pleasant interaction with the barista, creating a feel-good experience,
Tarantino added. One of the drawbacks of mobile ordering is that it tends to make the experience very transactional.
Labor strike dampens customer interest
Some customers, like Nebel and Turner, have cited Starbucks' labor disputes as a reason for avoiding the chain, although many analysts have downplayed this issue.
Nebel observed a Starbucks cafe in Chicago's Old Town neighborhood that used to be vibrant and lively but now sees a decrease in patrons and a somber atmosphere. The employees don't seem as happy as they used to, and perhaps that affects the overall vibe of the place,
Nebel remarked.
Starbucks is currently engaged in contract negotiations with the union representing its workers, following a prolonged conflict that has reached the Supreme Court with a case challenging the authority of the National Labor Relations Board.
"The potential impact of negative labor practices on Starbucks' consumer base is not far-fetched," stated Dunlop from MorningStar. "It's conceivable that some customers, especially those less loyal to the brand, may choose to reduce their visits if they disapprove of the labor practices. The irony lies in the fact that Starbucks actually provides one of the most attractive employee packages in the restaurant industry, yet they face backlash for practices that are common elsewhere."
On the other hand, the controversy surrounding Starbucks employees being prohibited from wearing Black Lives Matter attire has affected the brand perception for individuals like Morgan Bissett-Tessier, a 31-year-old law school student and part-time school administrator in New York. Despite Starbucks reversing its policy on BLM attire, Bissett-Tessier, who resides in Brooklyn, has chosen to steer clear of Starbucks.
"Starbucks was never a regular stop for me due to its cost, so it was always a special treat," Bissett-Tessier explained. "Now, it simply doesn't hold the same appeal."
