The days of a Starbucks on every corner may be numbered as the coffee giant navigates a new landscape of competition and consumer behavior. For decades, Starbucks built its reputation on an aggressive expansion strategy that placed its stores in urban and suburban settings alike. Comedian Lewis Black humorously noted in 2001 that the “end of the universe” could be found in Houston, Texas, where two Starbucks were located directly across from each other. However, the universe—and Starbucks—has significantly changed since then.
In recent weeks, Starbucks has faced increasing challenges due to rising competition, inflation, and evolving consumer preferences that have negatively impacted its bottom line. On Thursday, the company announced it would close 1% of its stores in North America this month. The closures, which will affect approximately 400 locations, are part of a larger $1 billion restructuring plan that also includes the layoffs of 900 corporate employees. Starbucks CEO Brian Niccol stated that the stores targeted for closure were either unprofitable or didn't meet the expectations of customers and partners.
Despite having over 32,000 locations worldwide, the decision to close stores is significant for Starbucks. Analysts, like RJ Hottovy from Placer.ai, attribute these closures to a shift in consumer behavior, particularly following the Covid-19 pandemic. Many customers have migrated away from urban centers, leading to reduced foot traffic and less business in specific areas. In addition to this, Starbucks is facing fierce competition from independent coffee shops and emerging chains, such as Blank Street Coffee and Blue Bottle, as well as drive-thru competitors like Dutch Bros.
Moreover, a recent survey by UBS revealed that more than 70% of respondents cited higher prices as a reason for planning to visit Starbucks less frequently in the coming year. This trend is especially pronounced among consumers earning under $100,000. Hottovy noted that Starbucks is grappling with challenges posed by ongoing macroeconomic uncertainty and the rapid growth of its drive-thru-focused competitors.
In response to these challenges, Starbucks is undergoing a significant transformation under the leadership of CEO Brian Niccol, who took the helm in September 2024 after a series of strategic missteps and a high turnover of CEOs. Niccol is recognized for revitalizing brands like Chipotle and Taco Bell, and he has a vision for repositioning Starbucks as a "third place" for customers—an inviting space between home and work.
Despite facing declining sales at stores open for at least a year for six consecutive quarters, Niccol is making bold moves to reinvigorate the brand. His strategies include a return to the brand's roots by encouraging baristas to doodle on cups and reinstating self-serve milk and sugar stations. Additionally, Starbucks has streamlined its menu by cutting 30% of its food and drink offerings, ended the open-bathroom policy for non-paying customers, and made staff reductions, including 1,100 layoffs in February.
To attract customers who prefer to enjoy their coffee in-store, Starbucks plans to renovate 1,000 of its locations—representing about 10% of its company-owned US stores—over the next year. These renovations will introduce comfortable seating options, tables, and power outlets, with a goal of enhancing the customer experience in all US stores within three years. However, some employees have raised concerns about the complexity of new drink recipes, especially during peak hours, which can lead to operational stress.
Despite these challenges, analysts remain optimistic about Starbucks' future. BTIG analyst Peter Saleh indicated that while the turnaround has taken longer than anticipated, he sees early signs of progress in Niccol's initiatives. “Once these strategies start to take effect, we believe the impact will be significant,” Saleh stated.
As Starbucks navigates the complexities of the current market, its ability to adapt and innovate will be crucial for its survival and growth. With an emphasis on enhancing the customer experience and responding to shifting consumer preferences, the coffee giant is working diligently to reclaim its position in the competitive world of coffee retail. The upcoming changes and strategic decisions will determine whether Starbucks can successfully evolve in this new era.
