Starbucks Shifts Away From Discounts, Toward Premium

On January 28, 2025, Starbucks (NASDAQ: SBUX) held its first-quarter fiscal year 2025 earnings conference call. The call marked an important checkpoint in new CEO Brian Niccol's "Back to Starbucks" turnaround strategy, focusing on restoring the company's core identity as a premium coffeehouse experience. While financial results showed ongoing challenges with comparable-store sales declining 4%, management expressed confidence that the strategic shift is beginning to yield positive signs.

"Back to Starbucks" Strategy Shows Early Positive Signs

Starbucks' new CEO is implementing fundamental changes to refocus the business on its core coffee identity and premium positioning. This shift away from discounting toward quality and experience shows early promising results in customer metrics -- including traffic growth from non-Starbucks Rewards members -- despite financial headwinds.

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We're only one quarter into our turnaround, we're moving quickly to act on the "Back to Starbucks" efforts we outlined on our last call. And to date, we've seen a positive response. ... We saw a shift in our sales mix toward coffee and espresso-based beverages, which over-delivered and compensated for lower-than-expected performance across our holiday promotions.

-- Brian Niccol, Chairman and Chief Executive Officer

Menu Simplification and Premium Positioning

Starbucks is making substantial menu changes to enhance operational efficiency, improve customer experience, and strengthen its premium positioning. This represents a significant shift from previous strategies that had expanded menu complexity.

In the coming months, you'll see us begin to optimize our menu offerings, resulting in roughly 30% reduction in both beverages and food SKUs by the end of fiscal year 2025. As we do, we'll work to lead this market with breakthrough beverage and food innovation.

-- Brian Niccol, Chairman and Chief Executive Officer

Addressing Mobile Order Sequencing to Improve Customer Experience

A key operational discovery is that mobile ordering bottlenecks, not production capacity, are the primary challenge for Starbucks' customer experience. Management is implementing new sequencing solutions that could transform the in-store experience while maintaining efficiency.

The good news is we've got some really good learning that when the mobile order promise time gets beyond 15 minutes, that's when we have people kind of bailing. So, what we're testing is if you can do these time slots or if you can do these promised times in such a way where it doesn't get past, let's call it, 12 minutes to 15 minutes, then we know we're going to delight the mobile order customer, and then that frees up the capacity so that the in-store customer can have roughly a four-minute experience.

-- Brian Niccol, Chairman and Chief Executive Officer

Looking Ahead

Starbucks management expressed cautious optimism about their turnaround strategy, with Niccol noting: "I'm confident the disciplined investments we're making in labor, marketing, technology, and stores this fiscal year will help stabilize the business and position Starbucks for future growth."

Management is prioritizing the partner experience, menu simplification, and order sequencing technology to enhance customer satisfaction. As Niccol emphasized, "Despite near-term challenges, we have significant strengths and a clear plan. ... I believe we'll make it easier to be a customer and, in turn, I believe they'll visit more often."

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David Kretzmann has positions in Starbucks. The Motley Fool has positions in and recommends Starbucks. The Motley Fool has a disclosure policy.