Starbucks’ new game plan: Will it work?

Starbucks’ new CEO announced a series of changes this week aimed at winning back customers as the company navigates union pressures, declining foot traffic, and general leadership changes.

Brian Niccol, who took over as CEO in September, told analysts on an earnings call this week that the company’s financial results were “very disappointing” as sales at U.S. stores open at least a year fell 6%, down from 10. % transaction decline.

Niccol emphasized the need for the company to return to its roots as a coffee house.

“It’s clear that we need to fundamentally change our customer acquisition strategy and get back to growth. Back to Starbucks is that fundamental change,” Niccol said. “We must return to what has always set Starbucks apart, a welcoming coffee house where people gather and where we serve the best coffee, hand-crafted by our talented baristas.”

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Changes you can expect at Starbucks:

Coffee house conversion

Niccol said the company aims to restore the coffees to their former “coffee house” aesthetic with a “personal touch,” including serving coffee in ceramic cups to diners.

The company is also updating the design of the cafe and plans to bring back comfortable chairs and accessories, so customers will be more inclined to sit and work.

Milk instead

The company said it will stop charging extra for customizing drinks with non-dairy milk. The company said customers who replace dairy milk with soy milk, oat milk, or coconut milk at company-operated stores will see a price drop of more than 10% starting Nov. 7.

Starbucks milk selection (Business Wire/Starbucks)

Condiment bar

The condiment bar is coming back next year. Niccol told analysts that baristas requested the feature, saying it would speed up their service.

“If you order a cup of hot coffee, it’s really quick because we’ll just give it to you when you’re about to sell it, and then you can go to the bar and handle your coffee as you see fit,” Nicol told analysts.

Sharpies are back

Niccol said the company is reintroducing Sharpies, a nod to its earlier days when baristas wrote customers’ names on coffee cups.

“I think there are a lot of simple things that say, ‘you know what, this is a community space, this is a special place where people are here to connect,'” Niccol said.

Part of his quick strategy includes simplifying the coffee chain’s “overly complex menu” and adjusting its pricing structure.

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A barista puts iced coffee into a mobile takeout at a Starbucks in New York on Aug. 17, 2023. (Gabby Jones/Bloomberg via Getty Images/Getty Images)

Alex Fasciano, an equity analyst at CFRA Research, believes that the changes already announced, such as a simplified menu and new pricing structures, will improve the customer experience, although he warned that there may be an imminent windfall related to prices,

In particular, changes to store design, such as improved coffee bars and comfier furniture, “will probably require significant investment” in fiscal year 2025, Fascino told FOX Business.

While Fasciano doesn’t see the changes making a “major impact,” he said it remains to be seen what additional plans the administration has in store.

“From one point of view, the American market is competitive, and management wants to operate each store effectively,” he said. “For one, they want to improve the customer experience, potentially sacrificing margins.”

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If Niccol succeeds in creating a better customer experience, “there is an argument for a big impact on sales and margins. However, we think it will take a while to realize,” added Fasciano.

In a research note published Thursday, Morgan Stanley analyst Brian Harbor was optimistic about the changes, saying “it feels like the Starbucks we started going to a few decades ago, and we remember it well.”

Part of CEO Brian Niccol’s immediate strategy is to simplify the “overly complex menu” and adjust its pricing structure. (Starbucks)

Harbor believes that Niccol’s vision can be realized, but that “there is a lot of work to be done in the grand scheme of the store.”

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“We’re reminded of the old metaphor of ‘building an airplane while it’s flying’,” Harbor wrote. “We’re in a wait-and-see pattern now as outside observers, and we’re still optimistic about this opportunity.”

He pointed out that key performance indicators in the near term will show “storms and some pain.”