Starbucks to streamline ‘overly complex’ menu, fix prices as sales dip

Starbucks capped off a disappointing year with a weak final quarter, blaming lackluster demand in its biggest markets.

The company reported preliminary results for its fourth quarter on Tuesday, showing a year-over-year drop in revenue for the third quarter in a row. The quarter ended Sept. 29, almost three weeks after Starbucks CEO Brian Niccol stepped into the role and publicly committed to a new path for the company.

For the final quarter of 2024, Starbucks’ preliminary results show $9.1 billion in revenue, a 3% decline from last year. Starbucks will report its full annual earnings next week.

“Despite our heightened investments, we were unable to change the trajectory of our traffic decline, resulting in pressures in both our top-line and bottom-line,” Starbucks Chief Financial Officer Rachel Ruggeri said in a news release Tuesday.

Niccol was brought on from Chipotle in a surprise Aug. 13 announcement, which also included the news that former CEO Laxman Narasimhan stepped down after only 17 months leading the Seattle-based coffee giant.

Narasimhan replaced Howard Schultz, who was in his third stint as Starbucks CEO, in March 2023. An outsider to the U.S. food retail industry, he inherited a reinvention plan from Schultz that included investment in new stores and technology that would prioritize convenience and efficiency.

Narasimhan’s replacement was immediately cheered by some of Starbucks’ biggest investors, and Wall Street responded with enthusiasm as the share price rose 25% in one day after the announcement. Niccol was viewed as a fixer for the stalled brand, which has dealt with struggling sales in its biggest markets like the U.S. and China.

Those struggles reached a low point midway through Starbucks’ fiscal 2024, when it reported a decline in revenue for the quarter, the first time it had done so since the beginning of 2021.

The company said the U.S. and China markets are still soft, driving the results. In the U.S., same-store sales fell by 6% compared to the year before. Overall transactions in the stores dropped by 10%, signaling the bloated menu and pricing structure that takes more money out of each customer’s pocket, which Niccol addressed on Tuesday.

“We will simplify our overly complex menu, fix our pricing architecture, and ensure that every customer feels Starbucks is worth it every single time they visit,” Niccol said in a prerecorded video on the company’s site.

Stores in China saw a steeper decline with a 14% sales drop from the previous year.

Starbucks is also suspending an annual financial forecast for 2025 due to the state of the company and the CEO transition, according to a news release.

“It’s clear we need to fundamentally change our strategy so we can get back to growth and that’s exactly what we are doing with our ‘Back to Starbucks’ plan,” Niccol said in the video.

Niccol laid out that plan in an open letter during his first week. Essentially his idea is to return Starbucks to its golden age: cozy coffee shops, simple menus and a renewed focus on its U.S. customers.

“We need to focus on what has always set us apart, a welcoming coffeehouse where people gather and where we serve the finest coffee, handcrafted by our skilled baristas,” Niccol said in the video.

Starbucks continues sales slide
Starbucks released preliminary financial results Tuesday, reporting year-over-year revenue declines for the third quarter in a row.

Source: Starbucks (The Seattle Times)

The company’s board of directors also approved a quarterly cash dividend increase from 57 cents to 61 cents per share of outstanding stock, projecting optimism for its plans.

“We want to amplify our confidence in the business, and provide some certainty as we drive our turnaround,” Ruggeri said. “For that reason, we have increased our dividend.”

Niccol said he will share more details of Starbucks’ plan to refresh its brand on Oct. 30, during the company’s earnings call.

Starbucks’ executive ranks haven’t been shaken too much by Niccol yet but the company did recently hire a new global brand chief officer, a position created by Niccol. Tressie Lieberman will join the company from Chipotle, where Niccol spent six years.

Around the same time that position was created, the company’s North American CEO Michael Conway said he would retire. Conway had been put in the role by Narasimhan in March. Instead of appointing Conway’s replacement, Starbucks will have its North America president Sara Trilling oversee the region.