Starbucks Sales Decline as Customers Push Back Against High Prices

Starbucks is facing a drop in sales as customers appear to be resisting the high costs of its popular iced coffees and lemonades. The coffee giant reported a 3% decrease in global sales at stores open for at least a year, with a 2% decline in North America. The number of transactions at these stores fell by 6% last quarter, partially offset by increased prices.

This marks the second consecutive quarter of declining sales for Starbucks, indicating a broader consumer pushback against rising prices at food chains, restaurants, and stores. The shift in consumer behaviour highlights vulnerabilities in Starbucks’ business model, which has evolved from a sit-down coffee shop experience to a predominantly drive-thru and mobile takeout service.

The trend reflects a broader market response, with other chains like McDonald’s also experiencing similar challenges. McDonald’s recently reported a 1% drop in sales at stores open at least a year, the first decline since 2020.

Starbucks is also contending with heightened competition from other drive-thru coffee chains and an increasing number of people opting to make their coffee at home. While the cost of groceries has stabilized, prices for dining out continue to climb, pushing more cost-conscious consumers away from pricier options like Starbucks.

“Cost-conscious consumers are finding alternatives or simply brewing their coffee at home. There’s also more competition from drive-thru chains like Dutch Bros,” noted RJ Hottovy, an analyst at Placer.ai.

Despite the challenges, Starbucks’ shares rose by over 2% in after-hours trading, although the company’s stock has fallen 19% this year.

Starbucks’ Strategy for Recovery
Starbucks has been pivoting its business model, with mobile app and drive-thru orders now accounting for more than 70% of sales in its approximately 9,500 company-operated stores in the United States. The company is also seeing a shift in product preference, with cold beverages like coffees, teas, and lemonades increasingly popular.

To regain its customer base, Starbucks has introduced value-oriented offerings, including a new “Pairings Menu” that offers a drink and breakfast item for $5 or $6. The company reports that this menu has been successful, leading to a rise in multi-item orders.

Additionally, Starbucks is investing in technology to improve efficiency. The new Siren System is designed to streamline the preparation of cold drinks, featuring faster blenders and strategically placed dispensers to reduce the time employees spend reaching for ingredients.

“Our strategies are beginning to yield results,” Starbucks CEO Laxman Narasimhan said during a call with analysts. “We are in the process of revitalizing our brand and strengthening the operational backbone of our stores and supply chain.”