On Wednesday, the foot traffic tracking firm Placer.ai published data indicating that traffic to Starbucks locations on “Red Cup Day” increased 42.4% compared with the average traffic from the previous five Thursdays. That was a bigger bump than the previous two iterations of the chain’s annual giveaway of reusable red cups.
The data could be a key indicator of improvement at the company, or it could be a random blip. But it’s also something of a milestone: It’s now been a year since the chain’s sales mysteriously fell off a cliff.
A year ago, Placer.ai data indicated that Starbucks’ Red Cup Day “did not drive a significant spike in overall weekly visits.”
Other data would soon reveal the problems went beyond the promotion. Credit card data revealed problems. And the research firm Earnest Insights suggested a slowdown in traffic. The company would later acknowledge the problems in its earnings report.
Industry watchers know what’s happened since. Sales and traffic have been bad all year. That includes a 6% same-store sales decline in the U.S., including a 10% fall in traffic, during the last quarter, the company’s fiscal fourth. It’s been the worst period of sales for the Seattle-based coffee giant in 14 years.
In fact, relative to its prior performance, this year has been even worse. Between the third calendar quarter of 2007 and the first calendar quarter of 2008, Starbucks same-store sales slowed from a 4% increase to a 5% decrease, a slowdown of 900 basis points.
This time, Starbucks’ same-store sales slowed from an 8% increase in the third calendar quarter of 2023 to a 3% decline in the first three months of 2024, an 11% slowdown. Factors are clearly different this time around.
Generally speaking, however, Starbucks went from performing extremely well one quarter to performing extremely not well two quarters later.
During the recession, Starbucks’ sales problems (which would worsen to a 10% decline by early 2009) were clearly influenced by a core consumer who was hurting. Yet this time around, Starbucks’ core consumer (people with higher incomes) have done just fine, fueling sales growth at chains like Sweetgreen and Cava and some of the chain’s primary competitors like Dutch Bros and Dunkin’.
McDonald’s, which faced immense challenges this year with consumer frustration over prices, saw its same-store sales slow 560 basis points over the same period as Starbucks’ 1,100-basis-point slowdown. All of which means much of Starbucks’ problem is a Starbucks problem and not an economy problem.
As such, the company has replaced its CEO after less than a year and a half and hired Brian Niccol. It has made several changes to management and its organizational structure already. And Niccol promises a lot more in the (likely near) future.
The issue laid bare some deep-seated issues with the company and the way it has evolved over the years. Its beverages are too expensive. Its customer base has shifted from white collar workers to sugar-addicted teenagers. Mobile ordering is creating headaches for both customers and employees.
It has also revealed issues with marketing. Most of the decline over the past year has been with occasional consumers, the people who are not members of the Starbucks Rewards loyalty program. The company spent most of its energy marketing to those loyalty members, with considerable success.
But it began losing occasional customers after a series of boycotts, including boycotts from union backers around Red Cup Day a year ago, as well as boycotts from people somehow conflating Starbucks with U.S. Middle East policy.
Rather than try and take control of the marketing message to bring those customers back, the company under now-former CEO Laxman Narasimhan panicked and tried to get more people on the loyalty program. And then they started a weird “Pairings” menu, as if luring more traffic during mornings when stores are already swamped with core loyalty customers was the answer.
We continue to come back to the key lesson from this whole debacle: Do not ignore your non-loyal customers. At a time when so many companies are pushing for that one-on-one marketing, the company that does that best just badly underperformed its competitors because it didn’t do nearly enough one-on-many marketing.
Starbucks can’t really do much to influence Middle East policy or consumers’ strange reactions to said policy. But that reaction began influencing sales. The resulting decline fed into media that there was a problem at Starbucks, which gave the boycotts energy but also increased the amount of negative attention being paid to the chain.
And then we all began talking about what we hate about Starbucks. At a time when consumers were cutting back on fast food as it was, the noise gave people plenty of reason to avoid the chain’s coffee drinks. And as such, we end up with a 10% traffic decline by the fall.
The good news for Starbucks is that its new CEO knows this.
“We focused our marketing too narrowly on Starbucks Rewards members,” Niccol said in October. “Our marketing needs to tell our coffee story and showcase our premium coffee beverages.”
Starbucks can definitely come back. When the chain’s sales plunged 15 years ago, the company brought back Howard Schultz, closed hundreds of stores, and quickly returned to its path toward coffee domination.
Starbucks can do the same again, and maybe already is, at least based on the performance of Red Cup Day this time around.