Starbucks’ new CEO Brian Niccol spoke for just about six minutes in a pre-recorded video released Tuesday afternoon. In it, the former Chipotle head promised further updates when the company unveils its Q4 results on October 30. But he began by offering context behind the setbacks facing one of the world’s largest retail brands.
And there are plenty. Starbucks shared preliminary results—a rare move for the java giant—alongside Niccol’s remarks. Even soft through recent quarters, the figures proved “much weaker” than expected, according to William Blair analyst Sharon Zackfia. Same-store sales fell 6 percent in the U.S., worsening from a 2 percent drop in June. Notably, the comp included a 10 percent plunge in domestic traffic—“virtually unprecedented for Starbucks outside of the pandemic”—while average ticket rose 4 percent. Zackfia believes September was the weakest month (continuing into October) given a promotional reset under Niccol, with 50 percent off and/or BOGO beverage deals and discounted F&B pairings replaced with extra rewards points days and discounts on orders of multiple beverages during off-peak days.
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Concerning that note in particular, Starbucks admitted Tuesday accelerated Q4 investments in an expanded range of product offerings coupled with more frequent in-app promotions and integrated marketing to entice frequency across the guest base “did not improve customer behaviors, specifically traffic across both Starbucks Rewards and non-SR customer segments, resulting in lower-than-expected performance.”
Or, put in plainer terms, the brand’s recent discounting efforts did not work.
That result isn’t exactly a revelation; it’s merely the first time Starbucks’ sales numbers reflected sentiment in print. Niccol told The Wall Street Journal earlier in October the brand was pulling back on promotions and price cutting in favor of repositioning as a premium coffeehouse experience. He reiterated that Tuesday.
“… I’ve heard from some customers that we’ve drifted from our core,” Niccol said in the video. “We’ve made it harder to be a customer than it should be. And that we’ve stopped communicating with them. As a result, some are visiting less often. And I think today’s results tell that same story.”
While details are forthcoming, Niccol said a fundamental strategy shift is underway, called “Back to Starbucks.”
“We have to reintroduce Starbucks to the world,” he continued. “We’re fundamentally changing our marketing. We’ve [now] been focusing on Starbucks Rewards customers rather than talking to all of our customers. And we’re changing that quickly.”
Niccol said it’s a straightforward blueprint, and one he’s followed throughout his years at Chipotle, Yum! Brands (he directed Taco Bell), and other stops. If Starbucks can deliver a quality, consistently delivered product, take care of its employees, and provide a “welcoming coffeehouse experience,” it will remind consumers of why they love the brand.
“They will visit more often, and we will return this company to growth,” he said.
Niccol joined the company in early September on a compensation package worth up to nearly $117 million in Year 1. That includes a $1.6 million base salary, a $10 million signing bonus, up to $7.2 million in annual cash incentives, a targeted $23 million in annual stock awards, and a one-time targeted $75 million replacement equity grant (this compensates the employee for the equity they are forfeiting by leaving their current job). He’ll also live in Newport Beach (where Chipotle’s HQ was relocated under his tenure) and commute to Starbucks’ head office 1,000 miles away on a corporate jet. Niccol won’t travel back and forth daily—rather, he’ll have a residence in Seattle where he’ll stay while there and work from Starbucks’ HQ.
Like all corporate employees in the company’s hybrid policy, Niccol will work from the office at least three days a week when he’s not traveling for the job.
He came to Starbucks after six years with Chipotle, where the company’s sales nearly doubled, profit lifted close to sevenfold, and its stock soared 800 percent.
The hurdles at Starbucks pulsed at that juncture. It saw its shares fall north of 21 percent during former Pepsi executive Laxman Narasimhan’s tenure as CEO, which began in September 2022 and ended this August.
The company’s domestic traffic declined 7 percent in Q2 and same-store sales slid 3 percent, marking the worst performance outside of the pandemic or Great Recession. And that dip continued in Q3 as comps fell 2 percent on the back of a 6 percent drop in transactions. As shared, it only got worse in Q4.
The focus on promotions and speaking to the “occasional customer” was something Niccol pinpointed early. In 2024, Starbucks ran several promotions to attract guests, particularly through its rewards program, which has more than 33 million members. This included BOGO weekends, “Summer App-y Days” featuring personalized offers every Monday and 50 percent off every Friday, and $3 grande-sized drinks on Thursdays.
Like Niccol mentioned, Starbucks wants to communicate better with its core Rewards guest, Starbucks’ Q3 U.S. traffic woes owed mostly to younger, non-rewards customers in the afternoon. Non-rewards customers accounted for 40 percent of Starbucks’ revenue, which implied a near double-digit drop in this base.
In Q3, only 14 percent of transactions at Starbucks were driven by offers compared to the competitor average of 29 percent. Of offer-driven transactions, 10 percent were star-based deals targeted to Starbucks Rewards users. Just 4 percent were pushed by price-based offers.
Niccol said customer-employee relationships at the brand started to become too transactional.
That’s where he wants to revive the “community coffeehouse” vibe. While Starbucks’ days as a “third place” are likely never peaking again given the rise of digital, Niccol wants stores to feel that way regardless if a guest is flowing through or sticking around.
“Even if they don’t want to stay there,” he said, “look and feel like the coffeehouse they remember.”
Niccol noted Starbucks has begun to revisit stores and reexamine amenities. Beyond the physical, it’s going to add staffing, remove bottlenecks, and ease procedures for baristas. That includes simplifying the menu, fixing Starbucks’ pricing architecture, and making sure every customer thinks it’s worth it every time they visit, he said.
Baseline, Niccol wants to ensure coffee comes first again and that customers understand and notice that at Starbucks, from the equipment to the employees to the product they pick up. “Need to remind everyone that we are, and always have been, Starbucks Coffee Company,” he said.
Starbucks will make the crew level “the best job in retail,” and ensure employees have the time and tools to provide customer experience, he added. Niccol also noted Starbucks needs to refine mobile order and pay so it doesn’t overwhelm the café experience.
To put into some perspective how large of an issue that is, more than 60 percent of Starbucks’ morning business in the U.S. flows from rewards members, who, naturally, overwhelmingly order from the app. However, despite strong mobile order and pay sales, Starbucks in Q2 witnessed a mid-teens percent order incompletion rate within the channel. What that meant was customers using the option put items into their cart and chose not to hit send, “citing long wait times of product and availability.”
So in addition to the anecdotal frustrations, Starbucks tangibly lost business from its inability to control the chaos, so to speak.
Niccol said the company’s initial focus will be on the U.S. side of the business, given it’s the largest part of Starbucks, and returning to growth. But China is struggling, too.
Same-store sales there declined 14 percent in Q4 thanks to a 6 percent drop in transactions and an 8 percent decline in ticket. Starbucks credited intense competition and a soft macro environment.
Overall Q4 revenue declined 3 percent versus falling 0.6 percent the prior quarter, with earnings per share down more than 20 percent to 80 cents. Zackfia said this suggests a roughly 100 percent flow-through of the sales shortfall, which potentially could be indicative of some new investments/initiatives already getting underway with Niccol.
Considering the volatility, Starbucks suspended guidance for fiscal 2025 while increasing its quarterly dividend from 57 to 61 cents.
A more extensive and revealing plan is coming on October 30. Zackfia expects a clear focus on how Starbucks will address the pain points. She expects the brand to reestablish a full-priced selling strategy and explore how it’s going to tell Starbucks’ story again—a directive led by the recent hire of Tressie Lieberman as global chief brand officer. Lieberman, the CMO of Yahoo, worked with Niccol at Taco Bell and Chipotle.
Still, Zackfia noted, the “thorniest issue” for Starbucks is how it’s going to bolster operations to improve speed of service and throughput, particularly in the morning.
BTIG analyst Peter Saleh agreed fundamentals at Starbucks were “weak in every corner of the globe.”
Tuesday’s earnings also hinted more margin contraction in North America than recent quarters, he said, likely about 400 basis points compared to the 100-basis-points decline in the last two quarters. “The steeper sales decline certainly plays a part, but it also seems like the increased menu, promotional, and marketing investments meant to improve traffic trends proved to be an expensive mistake,” Saleh said.
Returning to the morning cart point, Starbucks has clear opportunity to gain operationally if it can better serve peak demand and not dissuade customers from going elsewhere (or staying home) when they see the projected wait time on their orders.
Zackfia expects multiple avenues of attack on all fronts, including increased labor hours at stores and the reduced frequency of LTOs in favor of fresh product platforms. There’s been little discernible sales benefit from recent LTOs, not to mention the complexity they carry. Longer-term, she said, Starbucks needs to address the “physical plant” to better accommodate the company’s omnichannel business. Currently, orders converge at what’s essentially a single makeline. Chipotle, to contrast, features separate digital makelines that enable employees to split focus. The fast casual has enjoyed significant throughput improvements of late.
The ongoing rollout of Starbucks “Siren System” could also be modified to align production with demand, although, Zackfia admits, such an effort would likely take years given the 10,000-store corporate footprint Starbucks has in the U.S. alone.
Given these efforts, new unit growth might take a hit in 2025. Zackfia projects 2–3 percent growth in the Americas, down from 4–5 percent. Starbucks has been the fastest-growing U.S. restaurant chain by net unit count over the past two years, scaling by 429 and 473 locations in the 2022 and 2023, respectively.
Saleh had three takeaways for investors from Tuesday’s news. Firstly, the short-term menu and promotional investments didn’t have their intended impact, “suggesting the fix will be longer-term marketing and operational efforts.”
Second, investors should be more focused on the roadmap. “… as this is a healthy brand, with a unique menu, and no national or global competitor,” Saleh said.
“Lastly, don’t forget this is the first time in Starbucks’ history that it is being led by an external CEO with restaurant experience, and how impactful that could be,” he added.
