Why Starbucks is losing sales, and what it's doing about it

Starbucks has hired a new CEO to turn around sales declines. Matt Rourke/AP hide caption

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Matt Rourke/AP

You know things are rough at Starbucks when the company drops bad news preemptively, which it did last week to get ahead of Wednesday’s deadline to report earnings.

Sales in the U.S. have fallen for months, down 6% in the latest quarter compared to a year earlier, making it the worst quarter since the pandemic-era shutdowns. The number of purchases dropped 10%.

The chain’s new CEO is now ordering up a change: a plan he’s calling “Back to Starbucks,” evoking a time when Starbucks was simpler, cheaper, cozier, cooler — and thriving.

“We need to fundamentally change our recent strategy,” CEO Brian Niccol says in a video address about two months into the job. He mentioned plans to “simplify our overly complex menu,” adding: “We must re-establish ourselves as the community coffeehouse.”

In the absence of more specifics, speculation is rampant online: Will cafes get plushy couches? Will Starbucks limit syrups, toppings and endlessly customizable drinks disparaged as “Frankendrinks”? Will it reopen its condiment bar, where people used to pour their own milk and sweeteners before the pandemic?

A company representative tells NPR the CEO’s plans are still shaping up. Some details might emerge on Wednesday, as Niccol takes investors’ questions for the first time.

Too fancy to be basic, too basic to be fancy

Two women with paper coffee cups chat at a table near an airy, new Starbucks in the upscale Washington suburb of Bethesda, Md. Closer inspection reveals the cups to be from another cafe a block away.

“We’re just here for the sun,” says one of the women, Tamar King. “This is a park.”

In fact, this Starbucks is swarmed by rivals: This busy downtown stretch counts 11 coffee spots within a two-block radius. That includes the usual suspects Dunkin’ and Panera, the trendy options Tatte Bakery and Ceremony Coffee Roasters, and even another Starbucks. This kind of competition didn’t use to threaten the coffee giant, but it’s grown intensely.

In a video address, new Starbucks CEO Brian Niccol says the chain's strategy needs to "fundamentally change." NPR Screenshot/Starbucks CEO video address hide caption

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NPR Screenshot/Starbucks CEO video address

Plus, there’s another battlefront. The company that got America hooked on coffee now competes not only against other cafes, but also against all the fancy coffee makers people have at home or work.

That means Starbucks is stuck in the middle: Too fancy to be basic, too basic to be fancy.

“I used to go [to Starbucks] every day for years,” King says. What changed? “The office where I work has a fantastic coffee machine. Fantastic.”

Niccol talks about Starbucks losing occasional customers. But once-loyal visitors are also on the line.

“We loved it so much for years,” says Lisa Janofsky, who came by the Bethesda Starbucks with her husband Jerry to cash in on his rewards card: a free venti skim latte as a gift for his birthday.

They used to go to Starbucks daily. But now they gravitate to gourmet coffee shops when they want the “community feel” and superior coffee flavor. The daily lattes get made at home, they estimate, for about $1 a cup.

“We have a nice machine at home that we use,” Jerry Janofsky says. “And my wife is a great barista, she makes designs for me.”

On the wish list: better beans, cheaper drinks, latte art

Lisa Janofsky says she’d visit more often, if Starbucks beans tasted less burnt, size options included a short latte with just one shot of espresso, and if baristas did latte art.

The prospect of baristas making designs on top of the milk foam is hard to imagine at the pace of Starbucks, especially during the morning rush. Mobile orders often pile up, stores get crowded, workers overwhelmed.

“We need to address staffing in our stores, remove bottlenecks and simplify things for our baristas,” Niccol, the new CEO, says. “We need to refine mobile order and pay, so it doesn't overwhelm the café experience.”

Starbucks is betting big on Niccol, literally. The coffee company lured him from Chipotle, which he’s credited with rebooting after a series of foodborne-illness outbreaks. At the coffee giant, he could earn one of the biggest paychecks in the industry — more than $100 million — if he succeeds in turning it around.

His challenges are many.

Several shoppers in Bethesda bring up their disappointment that Starbucks is still fighting its unionized shops. The chain has lost its footing in China. It’s facing boycotts in the Middle East and Asia over the company’s perceived support of Israel in its conflict with Gaza. One woman in Maryland says that’s why two dozen people she knows in the U.S. have also stopped visiting Starbucks.

And the biggest complaint by far?

“It’s way too expensive,” says Anjeli Smith, who regularly works from Starbucks cafes, and on this day met a friend over a pumpkin cream cold brew. “I mostly just use my gift cards for birthdays and graduation.”

Niccol will likely get asked about his pricing plans on Wednesday, when he speaks to investors. He’s spoken only in vague terms so far, pledging to “fix our pricing architecture and ensure that every customer feels Starbucks is worth it every single time they visit.”