From: allin
Starbucks is facing significant business challenges related to its traditional model, digital shift, maturity, and brand commoditization [01:19:00]. These issues raise questions about premium brands, scale, and market maturity [01:32:05].
Current Performance and Leadership Changes
Brian Niccol, the current Starbucks CEO, joined after the previous CEO’s 16-month tenure [01:20:19]. Recently, Niccol suspended guidance for 2025 following preliminary earnings that showed a drop in sales [01:19:31]. Key financial metrics reflect this struggle:
- Same-store sales declined 7% year-over-year [01:19:54].
- Earnings per share dropped 25% year-over-year [01:19:57].
Niccol stated that the company is “getting the bad news out of the way now” and will focus on improving the Starbucks experience [01:20:01].
Customer and Employee Frustrations
Both customers and employees appear frustrated with the Starbucks product and experience, indicating a breakdown in the system [01:20:14].
Shift from Founder’s Vision
Howard Schultz, the founder, had an “obsession with user experience” [01:21:03]. His innovations included writing names on cups, remembering customers’ names, and empowering the “green aprons” (Baristas) [01:21:07]. The original intent was to create a “third space” – a welcoming and beautiful community coffee house [01:21:57].
However, after Schultz, “bean counters” reportedly took over, prioritizing efficiency [01:21:16]. This led to fewer Baristas per store, app-based ordering, and impersonal experiences, often resulting in crowded pick-up counters and stores that look like “truck stops” [01:21:19], [01:21:51].
Niccol’s Strategic Plan
Brian Niccol outlined a plan to address these issues [01:20:03]:
- Staffing & Operations: Address staffing, remove bottlenecks, and simplify tasks for Baristas [01:23:41].
- Mobile Order & Pay: Refine the system so it doesn’t overwhelm the cafe experience [01:23:47].
- Marketing: Shift focus from only Starbucks Rewards customers to all customers [01:23:52].
- Menu & Pricing: Simplify the “overly complex menu,” fix pricing architecture, and ensure perceived value for customers [01:23:59].
- Brand Identity: Reestablish Starbucks as the “Community Coffee House” [01:24:08].
Niccol’s approach, similar to his tenure at Taco Bell and Chipotle, involves simplifying menus and operations to improve turnaround and experience, though this risks reducing variety [01:24:26].
Product Mix and Market Maturity
Starbucks’ menu expansion over the past two decades has led it to become more of a “seller of sugar,” offering milkshakes and flavored beverages rather than just Italian roast espresso [01:22:30], [01:22:50]. One theory for Starbucks’ decline is the rise of GLP-1 (anti-sugar) medications. Eli Lilly, a pharmaceutical company, is performing significantly better than Starbucks, symbolizing “anti-sugar is winning” [01:25:06]. This suggests that a significant portion of Starbucks’ loyal customer base, particularly those consuming sugary drinks, might change their habits due to GLP-1 adoption, leading to continuous declines in same-store sales [01:26:01].
Maximization Effect and Competition
Starbucks may have reached a point of maturity, having maximized its brand reach, product coverage (how much customers buy), and pricing [01:28:08]. This “maximization effect” means growth through revenue expansion is limited [01:28:51]. The company could still be a profitable business by focusing on cost reduction and efficiency [01:29:10].
Unlike Apple, which faces similar market saturation but less direct competitive pressure from external factors like GLP-1s, Starbucks competes on a level playing field with rivals like Dunkin’ Donuts and Pete’s Coffee, as well as the new “orthogonal plane” presented by GLP-1s [01:29:57]. The economic pressure from shareholders may force Starbucks to double down on sugary drinks due to their higher average revenue per user (ARPU), rather than returning to its core coffee identity [01:29:21].
Starbucks’ journey reflects the challenges in Starbucks’ business strategy and brand as it navigates a mature market, shifting consumer preferences, and intense competition.