Starbucks CEO Brian Niccol promising bold changes with overhaul of US locations

Nov 01, 2024

Starbucks CEO Brian Niccol on Wednesday told investors that he plans to overhaul Starbucks’ US locations, adding more comfortable seating, ceramic mugs and a coffee-condiment bar, with customer wait times of less than four minutes.

Faced with falling demand for its pricey beverages in the key US and China markets as well as a slide in its share price, Starbucks’ investors are counting on the new CEO to steer the company back to growth.

The company last week suspended its forecast for its 2025 fiscal year.

“Our financial results were very disappointing, and it is clear we need to fundamentally change our strategy to win back customers and return to growth,” Niccol said.

The CEO said he wanted to make it “easier for our customers to get a cup of coffee,” and that the company would aim to reduce wait times to less than four minutes. To help with that, and to make prices clear, Niccol also said the company would be simplifying its menu.

Niccol said staffing levels might increase, addressing a complaint that has often been voiced by baristas and by Starbucks Workers United, which is seeking to unionize Starbucks workers. “I want to make sure that the teams are staffed to win every transaction,” he said.

Investors are hoping that Niccol, an industry veteran and former Chipotle Mexican Grill head, will simplify the company’s leadership and operating structure, and reinvigorate the coffee-house culture at Starbucks’ US stores.

Niccol said ceramic mugs would be offered to customers who are staying in the café, and that actions would be taken over the coming months to separate pick-up orders from sit-down orders. He said “common sense guardrails” would be placed on mobile ordering.

Shares of the company have risen about 26% since Niccol replaced Laxman Narasimhan as CEO in a surprise announcement in August. They were little changed in extended trading on Wednesday.

Starbucks posted a 7% drop in global comparable sales for the fourth quarter on Wednesday, after reporting preliminary results for the quarter ended Sept. 29 last week.

Comparable transactions, which reflect traffic at its stores, fell for the third straight quarter in North America.

The Seattle-based company’s strategy to drive demand through promotions and improved loyalty program offers has fallen flat in the face of muted spending from cost-conscious consumers. Niccol acknowledged on Wednesday that the company had focused marketing too narrowly on rewards members.

Growth in its loyalty program was tepid in the fourth quarter, with 90-day active members in the US remaining flat sequentially. That compares with a 3% sequential rise reported in the third quarter.

Starbucks is also facing an uphill battle in China, where it is dealing with a choppy macroeconomic recovery and stiff competition from local brands.

Comparable sales in China, the company’s second-largest market after the US, declined for three straight quarters, falling 14% in the fourth quarter.

International comparable sales fell 9% in the fourth quarter, wider than a 6.5% drop expected by analysts, as per data compiled by LSEG.

The company’s net income fell to $909.3 million, or 80 cents per share, from $1.22 billion, or $1.06 per share, a year earlier in the fourth quarter ended Sept 29.

Some menu simplifications are coming soon. A company spokesperson on Wednesday confirmed the chain will on Nov. 7 be removing from the menu its olive-oil-infused drinks, which were backed by former Starbucks CEO Howard Schultz, though the decision was made before Niccol became CEO.