The coffee giant Starbucks is undergoing significant changes, marking a shift in its longstanding model of pervasive expansion. The company has revealed plans to close approximately 400 locations, representing around 1% of its outlets in North America. This move comes as part of a larger $1 billion restructuring initiative aimed at revamping its business strategy.
Reasons Behind Starbucks Store Closures
Several factors have contributed to Starbucks’ decision to scale back. The company is facing intensified competition from independent coffee shops and emerging chains. The rising popularity of drive-thru coffee companies, such as Dutch Bros, has also impacted foot traffic to Starbucks locations.
- Increased competition from small and growing chains.
- Consumer migration away from urban centers post-Covid-19.
- Higher product prices leading to decreased customer visits.
A recent survey conducted by UBS indicated that over 70% of respondents cited elevated prices as a reason to reduce visits to Starbucks in the coming year. Notably, the survey pointed out that customers earning under $100,000 are reducing their visits the most.
Strategic Changes Under CEO Brian Niccol
CEO Brian Niccol, who took the helm in September 2024, is spearheading the turnaround effort at Starbucks. He aims to restore the brand’s image as a welcoming “third place” for customers—an environment that sits comfortably between home and work.
Niccol’s strategy includes:
- Reintroducing baristas doodling on cups.
- Restoring self-serve milk and sugar stations.
- Streamlining the menu by cutting 30% of food and drink options.
- Renovating 1,000 stores to provide inviting seating areas.
Despite these efforts, Starbucks has faced criticism from employees regarding the changes, especially new drink complexities along with increased customer flow during peak hours.
Impact on Starbucks
Starbucks has experienced a notable decline in sales over the past six quarters. The company’s stock has dropped by about 9% this year, signaling challenges in the current market landscape.
Analysts, however, express cautious optimism about the direction in which Niccol is leading the company. Improvements in store renovations and branding are anticipated to enhance customer experiences significantly. BTIG analyst Peter Saleh believes that while the turnaround may take longer than expected, significant benefits will eventually be realized.
In summary, Starbucks is at a critical juncture, adapting to changing consumer behaviors and a competitive landscape. The current restructuring plan reflects a strategic recalibration aimed at ensuring profitability and customer satisfaction in the years ahead.
