Most companies would be happy to “fight” like Starbucks has done. The chain reported a relatively modest 9% increase in U.S. same-store sales in its fiscal 2023, with 5% of that growth coming from higher average transactions that likely came from price increases.
The network, however, has given some signs that it is losing some of its audience. Customer traffic has been weaker in November, according to data from ai/blog/starbucks-2023-holiday-menu-red-cup-day-performance”>Pleasure.ai.
In 2020, 2021, and 2022, daily visits during Red Cup Day increased by 74.4%, 65.0%, and 81.0%, respectively, compared to the average daily visits during the five weeks prior to Red Cup Day. Red Cup Day each year. But in 2023, the increase in Red Cup Day visits relative to the daily average of the previous five weeks was 31.7%, still a notable increase, but not as impressive as in previous years.
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Taken on a single day, the results don't mean much, but they appear to be part of a trend.
“Visits between November 13 and 19, the week of Red Cup Day, were 16.1% lower compared to the equivalent week in 2022. And visits during the week before, the first full week “after the launch of the Christmas Menu, they were down 3.4% year-on-year, indicating that demand for holiday specialty drinks may have been slightly lower this year,” according to the Placer.ai report.
You can blame inflation, the economy, and increased competition, but that's not why Starbucks shareholders should worry. Yes, all of those things could play a role, but Starbucks' problem is CEO Laxman Narasimhan.
Image source: Starbucks
Starbucks CEO misses what people love
While people have some criticisms of how former Starbucks CEO Howard Schultz handled the company's labor issues, his coffee bona fides can't be questioned. Schultz didn't found Starbucks, but when he took it over, the company simply roasted coffee and sold beans.
Schultz brought to the brand the idea of being an American version of an Italian coffee shop with locations that served as a third place between work and home for customers. The former leader of the company always put coffee at the forefront of the chain's experience.
Narasimhan has no experience with coffee. That's a lot like Kevin Johnson, the former Microsoft executive who had previously taken over as CEO during one of Schultz's stints away from the company. Both Johnson and Narasimhan have impressive operational experience, but the magic of the cafeteria experience isn't just about efficient ordering or fast production.
Instead, the coffee and overall experience should connect with customers so they want to make Starbucks part of their routine. Yes, operations matter, but that's not what keeps people coming back.
Forget McDonald's and focus on coffee
McDonald's (DCM) – Get a free report By entering the beverage space, CosMc's could one day be a challenger to Starbucks customers who don't drink coffee, but that will likely take many years, if ever.
For the immediate future, Starbucks' biggest problem is that its CEO has spearheaded a new revitalization strategy that virtually never mentions coffee. It's a dispassionate credo that seems like the product of consultants, not a CEO tracking coffee culture around the world.
“Triple Shot Reinvention will focus on three priorities: elevating the Starbucks brand; strengthening the company's digital capabilities; and becoming truly global; personalized with 'two pumps' that unlocks efficiency and revitalizes partner culture,” he shared the company on its website.
While Schultz was introducing the chain's Oleato line of olive oil-infused coffees, his successor was working on this clichéd word salad that doesn't address the unique connection the chain has with its customers. Starbucks needs a leader who values innovation while quietly making sure stores are running well and labor issues are resolved.
History has shown that it is a company that is not well served by making operations, not coffee, its main objective.
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