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Challenges at Starbucks: Global Decline in Sales

A girl drinking Starbucks Coffee
Starbucks Coffee

Andrew Buckley, known as the 'mocha guy', has ended his Starbucks habit after the latest price hike pushed the cost of his favorite drink above $6.

This 50-year-old Idaho resident, working in technology sales, was a loyal customer for decades. His daily venti mocha was a small luxury that allowed him to relax during work hours. However, the recent price increase was the final straw.

"It was the tipping point for me regarding inflation overall. It was like saying, 'enough, I can't do this anymore'," Buckley expressed, who first called customer service to complain and then took to social media to share his frustration.

"I just quit," he added. "And I have no plans to return."

His decision reflects deeper issues facing Starbucks.

The company is encountering growing resistance from customers, burdened by inflation, just as it faces union challenges and political criticisms that have sparked boycott calls and tarnished its reputation.

Losing its most loyal customers:

Globally, Starbucks' revenue fell 1.8% year-over-year in the first quarter of 2024.

In the U.S., its largest market, comparable store sales dropped by 3%, the sharpest decline since the pandemic and Great Recession.

Internationally, sales declined by 6%, primarily due to an 11% drop in China.

Even its most loyal customers, like rewards program members, decreased by 4% in active numbers from the previous quarter.

Former regular customer David White has significantly cut back his Starbucks purchases in recent months, sometimes abandoning orders mid-purchase upon seeing the total bill.

He criticizes the price hikes in addition to other company decisions he finds unacceptable, including its stance on unionizing workers.

"They are taking advantage of the loyalty of their regular customers and exploiting both their employees and prices," the 65-year-old Wisconsin man criticized.

For Andrew Buckley, quitting Starbucks was primarily a response to prices, although the political controversies surrounding the company also left a bad taste.

"This is a coffee shop. They serve coffee," he pointed out. "I don't want to see them in the news."

Long-term recovery:

In a recent conference call discussing the company's results, Starbucks CEO Laxman Narasimhan acknowledged disappointing sales, attributing them in part to consumer caution with spending.

He also acknowledged that "recent misinformation," particularly about Middle Eastern issues, has affected sales.

However, Narasimhan defended the brand and pledged to recover business with new menu items, store service improvements, and a series of promotions.

CFO Rachel Ruggeri reported that the company is seeing signs of recovery and noted growth in active rewards program members.

Despite these challenges, Starbucks does not intend to abandon its expansion plans, although it cautioned investors that recovery may take time.

"We believe it will take time," Narasimhan said.

A deeper symptom?

Starbucks' problems have sparked a debate on whether they reflect a shift in U.S. consumer spending behavior, traditionally a driver of the country's economy.

Like Starbucks, other major fast-food chains such as McDonald's, Wendy's, and Burger King have also reported sales declines and are implementing significant discounts to stimulate consumption.

However, many analysts believe that the decline in Starbucks sales reveals more about the company itself than the broader economy.

"When you see such a sharp drop in such a short time, it's usually not something macroeconomic or just related to prices," noted Sharon Zackfia, consumer director at William Blair, expressing concerns about the brand's fading luster in a recent client note.

Social aspects:

Some critics have raised concerns about wages and working conditions, contrasting with the company's progressive image.

In late October, after Starbucks sued a union over a social media post expressing solidarity with Palestinians, the company became embroiled in controversies over the Middle East conflict, sparking global boycott calls that gained momentum.

Although Starbucks is not an official target of the Boycott, Divestment, and Sanctions (BDS) movement, it has blamed misinformation about its views and has sought to improve its relationship with the union, now issuing joint statements announcing progress in contract negotiations.

Boycott calls persist on social media, suggesting a significant impact on the brand's public perception.

Sara Senatore, Bank of America analyst, initially expressed skepticism about the boycott's impact but concluded that other explanations were insufficient to justify Starbucks' abrupt sales decline.

She compares the challenge to the brand crisis Chipotle faced after E. coli outbreaks in its stores, which took years to overcome.

"All they can do is try to cushion the blow or overcome it with other strategies," Senatore concluded. "It may just be a matter of time."

"Feels more like a chain"

On a recent sunny day in New York, where Starbucks is ubiquitous, the business's situation was evident.

Some stores appeared empty, although the calm was interrupted when customers arrived to pick up their mobile orders.

Even loyal customers acknowledge there is room for improvement.

Maria Soare, 24, from Washington DC, continues to buy Starbucks several times a week, but her frequency has decreased since the pandemic, when leaving home was less common.

She criticizes recent price hikes and suggests the company should revamp its food offerings.

Veronica and Maria Giorgia, 16 and 17, respectively, have also shifted their perceptions of Starbucks.

Veronica no longer visits the chain as much for several reasons: better options elsewhere, price hikes, and recent labor activist protests.

"That opened my eyes," she said. "It feels more like a chain."

While Maria Giorgia remains a regular customer, she admits her opinion of the company has changed over time.

"When I was in high school, I thought it was cool. Now it's just convenient."

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