Starbucks Loses Millions of Customers Amid Operational Woes
Starbucks reported a sharp decline in sales and profits for the second quarter of fiscal 2024, reflecting the loss of tens of millions of customers from the coffee giant.
The company’s Q2 results showed:
- A 5% drop in International segment revenues to $1.8 billion, driven by unfavorable foreign exchange rates, a 6% decline in comparable store sales, lower product/equipment sales, and royalties.
- International operating income fell 26% to $233.8 million, with operating margins contracting by 3.7 percentage points to 13.3%.
- Channel Development segment revenues down 13% to $418.2 million due to the sale of Seattle’s Best Coffee brand and SKU optimization.
- Channel operating income decreased 17% to $216.3 million, with margins down 2.8 points to 51.7%.
Founder Calls for Course Correction
The disappointing results prompted a stern rebuke from Starbucks founder and former CEO Howard Schultz. In a LinkedIn post, Schultz criticized the company’s current leadership, saying “there must be contrition and renewed focus and discipline on the core.”
Schultz, who stepped down as interim CEO last year, urged Starbucks to get back to basics by emphasizing superior coffee offerings rather than chasing new trends like boba drinks and energy beverages proposed by current CEO Laxman Narasimhan.
“The go-to-market strategy needs to be overhauled and elevated with coffee-forward innovation,” Schultz wrote, adding that senior leaders should spend more time in stores understanding the customer experience.
Addressing Operational Inefficiencies
Both Schultz and Narasimhan acknowledged the need to improve operational execution after long wait times and slow service drove an alarming number of customers to abandon mobile orders.
Narasimhan cited tackling slow service as a top priority to reverse Starbucks’ slump, though Schultz questioned whether the new CEO’s focus on unconventional product launches would provide the right solution.
As the coffee icon works to recapture its customer base, all eyes are on whether a back-to-basics coffee approach can help reignite growth and restore the premium experience that once defined the Starbucks brand.
