LogFAQs > #943030616

The company that engaged in the Christmas/Red cup controversy, is now at risk for failing due to COVID; the shift in culture towards WFH by big tech and the loss of customers to cheaper competitors like McDonalds and Dunkin' Donuts

Now, Starbucks is in a new funk. Covid-19 and the deep economic retrenchment have led to the companys first month-on-month drop in sales since the 2008/2009 financial crash. In Starbucks earnings announced this afternoon, third-quarter sales fell by 40% and the company lost about $2 billion year on year as urban office corridors, where millions of bustling workers grabbing a morning coffee were the backbone of Starbucks sales, lie all-but empty, and airport locations are barely working. Conditions are not as grave as Schultz described to his managers 12 years ago. But Starbucks share price is almost 20% below its January peak, much more than the S&P 500, which is down just 4% from February 19, when the market plunge began.
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Championing speed and convenience, CEO Kevin Johnson is doubling-down and accelerating the construction of hundreds of drive-thrus and 40 to 50 urban pickup-only stores. In other words: shifting from the experiential model that made Starbucks Starbucks, to that of a glorified food truck.
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Americans, stuck at home and limited in their choices, have flocked to Dominos, McDonalds, Jack in the Box, and Papa Johns, all of which have either almost caught up to or surpassed pre-virus sales, cashing in with convenient, outsized family meals with enough for leftovers. Given Starbucks deep bench of brand status-addicted loyalists, one would think it would enjoy the same Covid indulgences. Part of the reason it hasnt is that people arent pressed to get anywhere at breakfast time when Starbucks normally would be racking up 60% of its sales.
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Now, the reality created by the pandemic has played further into the hands of Starbucks cheaper rivals. Coffee drinking habits seem to have changed. In Australia, people have snapped up grinders to brew upscale beans at home. In Canada, people are buying both fancy beans and instant coffee in higher quantities, according to a survey.
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Even when restaurants reopen in the U.S. and elsewhere, they predict that coffee sales will return to pre-Covid levels only by 2024.
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In an announcement Monday, Google became the first big company to decide to keep its employees home for another year through next July and not bring them back as planned in January. And Reuters reported that 25 of the countrys largest companies are reducing the size of their offices, presuming that many of their employees will continue to work from home. If suburban and urban downtowns remain largely closed, and sitting in a Starbucks is prohibited, a full comeback for the chain doesnt seem possible. Reflecting this reality, Starbucks, on the line for $1.25 billion in rent over the next year at its approximately 16,000 company-operated stores and other real estate around the world, demanded a year of reduced rent from landlords across the country in May.
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Many Starbucks customers may sincerely want to just sit in their car in the drive-thru lane. Maybe many would be fine if Starbucks was reduced to nothing more than an app and a vending machine?
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As a sign of potential trouble, Starbucks said today that membership in its loyalty club shrank by 5% over the last quarter, to 16.3 million people.If Starbucks is going to revive itself as the center of coffee culture, it needs to figure out how to react to the very real possibility that the office core will not return at scale. If the company were channeling Schultz, it might decide that the central answer to what ails it is not a commodity drive-thru and grab and go, though they can be part of it. Instead, Starbucks needs to wholly reimagine the third place.

Uh Oh...