Starbucks on Tuesday unexpectedly released preliminary financial results for its fourth quarter and full fiscal year, revealing a 10% traffic slide and ushering in what its new CEO termed “the moment of truth.”
“We are reorienting all our work to ensure we deliver a high-quality hand-crafted beverage, prepared quickly and with care, and handed directly to the customer by our barista,” Starbucks CEO Brian Niccol, who joined the chain on Sept. 9 after serving as Chipotle’s CEO, said in a public video about the earnings. “This is the moment of truth. This commitment will drive every decision we make.”
For the fourth quarter ended Sept. 29, Starbucks reported global same-store sales declined 7%, driven by a 6% decrease in U.S. comparable sales. The 10% drop in traffic was partially offset by a 4% average ticket increase.
For the full fiscal year, Starbucks’ global same-store sales fell 2%, with net revenues increasing 1% to $36.2 billion.
Starbucks noted that neither expanding its product offerings nor offering more frequent in-app promotions helped boost traffic.
In China, meanwhile, Starbucks same-store sales dropped even further, declining 14%. The decrease was driven by an 8% decline in average ticket compounded by a 6% drop in comparable-store sales.
“Our fourth-quarter performance makes it clear that 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 a statement, echoing the strategy he unveiled his first day on the job.
The Seattle-based chain will report its full financial results and host a call with analysts on October 30.
Despite the dismal earnings report, Niccol called Starbucks’ current problems “fixable.”
He said he has spent his early weeks at the coffee chain meeting with employees and customers, developing a road map forward for the brand. Among those renewed areas of focus, Niccol said via video:
- Coffee comes first, with a focus on quality and expertise;
- Focus on “our green apron partners,” making sure baristas have everything they need to provide high-quality customer service, with strong managers in each store;
- Give customers great experiences every time, especially during the morning peak, by removing in-store bottlenecks and refining mobile ordering;
- Reestablish the chain as “the community coffeehouse” by making sure its stores are comfortable, welcoming places;
- Reintroduce Starbucks to the world through revamped marketing, less focus on Starbucks Rewards loyalty customers, a simplified menu and returning to growth in China
Almost as soon as Niccol became CEO, Starbucks began cutting back on discount offers to both new and existing customers, an initiative that had been rolled out by Niccol’s predecessor, Laxman Narasimhan.
“I’m convinced that if we get back to Starbucks—with a focus on coffee and customers combined with a welcoming coffeehouse experience created by our green apron partners—we will remind people of why they love Starbucks,” Niccol said in the video. “They will visit more often, and we will return the company to strong growth.”
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