Barron's Roundtable panelists provide economic outlook and analyze Starbucks and Chipotle stocks.
Starbucks' new chief executive announced a series of changes this week aimed at bringing back customers as the company weathers unionization pressures, declining customer traffic and frequent leadership changes. did.
Brian Nicol, who took over as CEO in September, told analysts on an earnings call this week that the company's results were “very disappointing” as sales at U.S. stores open for at least a year fell 6%. ” he said. % reduction in transactions.
Nicol emphasized the company's need to return to its roots as a coffee house.
“It's clear that we need to fundamentally change our strategy to win back customers and return to growth, and returning to Starbucks is that fundamental change,” Nicol said. “We need to get back to what has always set Starbucks apart: a welcoming coffeehouse where people gather and serve the finest coffee handcrafted by our expert baristas.”
Starbucks CEO says he will fix “overly complex menu'' to reverse sales slump
Starbucks CEO Brian Nicol emphasized the need for the company to return to its roots as a coffee house. (Photo by Robin Merchant/Getty Images/Getty Images)
Changes to expect from Starbucks:
coffee house transformation
Mr. Nicol said he plans to return the cafe to its former “coffee house” aesthetic with “personal touches” such as serving coffee in ceramic mugs to diners.
The company is also redesigning its cafes and plans to bring back more comfortable seating and amenities to encourage customers to work more sedentary.
milk substitute
The company announced it will no longer collect additional fees for customizing beverages with non-dairy milk. The company announced that customers who swap milk for soy milk, oat milk, or coconut milk at company-operated stores will receive a price reduction of 10% or more starting November 7.
Milk carefully selected by Starbucks (Business Wire/Starbucks)
seasoning bar
The condiment bar will be back next year. Nicol told analysts that baristas had requested this feature because it would speed up service.
“When you order a freshly brewed coffee, you just hand it over right at the point of sale, so it's a very quick experience. Then you can go to the coffee condiment bar and adjust your coffee just the way you like it.” 'You can take a look at it,''' Nicol told analysts.
sharpie is back
Nicol said the company is reintroducing the Sharpie, another nostalgic throwback to the early days when baristas wrote customers' names on coffee cups.
“I think there's a lot of very simple things that go into saying, 'This is a place of community, this is a special place that people are here to connect,'” Nichol said. .
His immediate strategy includes simplifying the coffee chain's “overly complex menu” and fixing its pricing structure.
Report shows coffee customers rank Starbucks last among competitors in major categories
A barista places an iced coffee in the mobile pickup area of a Starbucks on August 17, 2023 in New York. (Gabby Jones/Bloomberg via Getty Images/Getty Images)
Alex Fasciano, equity analyst at CFRA Research, believes that changes already announced, such as simplified menus and new pricing structures, will improve the customer experience, but there are some short-term concerns related to pricing. He warned that there could be headwinds.
In particular, in-store design changes such as an improved coffee condiment bar and more comfortable furniture “will likely require significant investment” in fiscal 2025, Fasciano told FOX Business.
Fasciano said he doesn't expect the changes to have a “significant impact,” but it remains to be seen what additional plans management has in place.
“From one perspective, the U.S. market is highly competitive, and management wants to run each store efficiently,” he said. “Looking at it another way, they want to improve the customer experience and may sacrifice profits.”
Starbucks shrinks discounts as new CEO aims to change direction
If Nikkor succeeds in creating a better customer experience, “there is an argument that it will have a significant impact on sales and profits. But it will take some time for that to materialize,” Fasciano added.
Morgan Stanley analyst Brian Haber was optimistic about the change in a research note published Thursday, saying, “The Starbucks we first started going to decades ago, which we fondly remember, will… It's very similar,” he said.
Part of CEO Brian Nicol's immediate strategy is to simplify the company's “overly complex menu” and revise its pricing structure. (Starbucks)
Haber believes Nicol's vision is achievable, but “there's a lot of work to be done in the big store system.”
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“We are reminded of the old metaphor of 'assembling an airplane while in flight,'” Haber wrote. “We're kind of on the sidelines as an outside observer right now, but we remain optimistic about the opportunity.”
He expected near-term key performance indicators to show “headwinds and some pain.”
