Few companies in the restaurant industry face quite the growing level of competition as does Starbucks.
Consider: Three of the six largest coffee chains are relatively new, high-growth, drive-thru-only brands 7 Brew, Dutch Bros and Scooters. There are several other concepts vying for the beverage business also, such as Swig and a generation of boba tea brands.
Meanwhile, three top 5 restaurant chains are actively taking steps to boost their beverage business, McDonald’s, Chick-fil-A and Taco Bell. And roughly everybody else is, too.
All that is changing the narrative for the giant Starbucks, which for years worried only about Dunkin’ or the independent coffee shop down the street. Now it needs to concern itself with the 7 Brew that’s about to open nearby.
Yet CEO Brian Niccol believes his company is well-positioned to meet that competitive threat.
We’ve “got to be on our best offense” he told analysts last week. “And our best offense is to make sure that we stand for the craft around our coffee and drinks and food and then the customer connection and experience that we provide.”
The beverage business itself is growing and evolving, with more competitors, more beverages types and a lot more customization. All that has put traditional coffee chains on their heels.
Dunkin’, which is coming off a strong summer, is testing a change to its stores in the afternoons to boost sales of cold beverages. More traditional coffee concepts, such as the Minneapolis-based Caribou, have been expanding with drive-thru-only versions of their brands.
But for Starbucks, the growing competition has led to a lot of speculation that this competition is the biggest reason for its two-year-old sales slump. System sales last year declined a half a percent, according to Restaurant Business sister company Technomic. That decline has likely intensified this year amid continued same-store sales slowness and store closures.
Starbucks does have a lot to lose. It occupies about two-thirds of the U.S., quick-serve coffee sector, according to Technomic data. That sector grew just 3% last year. These growth chains have to be getting business from somewhere.
What’s more, Starbucks in recent years has grown by pushing customized, cold beverages that are often crafted for social media purposes. Yet 7 Brew, Dutch Bros and Swig target much the same crowd.
Niccol, however, believes the company has major advantages, notably its size and the wide range of access points.
“The good news is we provide all the access modes that all these new emerging concepts provide,” he said. “I already have the biggest drive-thru coffee chain in America. I already have the biggest mobile order and digital coffee business in America. And I also have the biggest café coffee business in America.
“One thing I learned early in my career is scale matters, and we have scale in all those access points.”
But Niccol believes Starbucks’ focus on improving its connection with customers will ultimately win the day. And in that sense the company is hitting the growth brands where it counts. Many of these growth chains pride themselves on service, even in the drive-thru.
We “have a unique positioning around the craft and connection and the customer experience that we provide,” Niccol said. “I think competition will make us better. And I’ve asked our organization to be focused that way. We need to be better than we were yesterday. That’s how I know we’re on our best offense.”
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