After soaring through the pandemic with record sales and major successes, Starbucks' seemingly continuous rise has taken a sudden dive. The first quarter of 2024 saw the coffee giant fighting battles on several fronts. Can Starbucks rally, as it has in the past, or will it continue to face headwinds with the global audience watching?
For the first time since 2020, Starbucks reported a decline in first-quarter same-store sales (one of its critical health metrics), and shares have fallen more than 12% in response. This forced the company to drastically reduce its full-year sales outlook, a shocking turn of events considering that last year’s first-quarter same-store sales were up by 12%. With global revenue down 1.8% to $8.56 billion and a net earnings reduction of 15% to $772.4 million, executives are scrambling to recover.
“Let me be clear from the beginning, our performance this quarter was disappointing,” Laxman Narasimhan, the chief executive of Starbucks, said in a statement on the earnings call. “In a highly challenged environment, this quarter’s results do not reflect the power of our brand, our capabilities, or opportunities ahead.” Nasasimhan continued, “It did not meet our expectations, but we understand the specific challenges and opportunities immediately in front of us.”
Some Starbucks executives, including former two-time CEO Howard Schultz, see abandoned transactions on the company’s mobile app as a clear culprit for lagging sales. Schultz, who continues to be more involved that many ex-CEOs of publicly-traded companies, wrote on his LinkedIn account that Starbucks needs to “reinvent” the app’s ordering and checkout process to “once again make it the uplifting experience it was designed to be.”
QSR magazine commented that Starbucks does have “strong mobile order and pay sales.” However, a major segment of important potential customers, the “mid-teens percent,” often cancels orders on the app before buying due to long wait times and lack of product availability.
Starbucks’ second largest market, China, is proving difficult to conquer, as sales fell by 11% in the first quarter of 2024. With local chains like Luckin Coffee offering more affordable options, Starbucks is struggling to win the loyalty of wealthy Chinese consumers looking for high-end coffee and tea.
High interest rates and inflation are part of the problem, as companies like McDonald’s, Pizza Hut, and KFC also reported losses this quarter. Americans are forced to curb their spending, and Starbucks now faces fierce domestic competition. "In this environment, many customers have been more exacting about where and how they choose to spend their money," Narasimhan said.
Another major factor that can not be overlooked is Starbucks's recent positioning as a business that doesn’t care about the working conditions of its employees or farmers. Despite announcing in March that the company would finally sit down with union representatives and begin negotiating labor agreements, some might say the damage is already done. Since workers started organizing in 2021, Starbucks has spent over $240 million undermining their efforts, publicly portraying itself as one of the most aggressive union-busters since Disney.
A lawsuit filed in January by the National Consumer’s League accuses Starbucks of “falsely and deceptively claiming ‘100% ethical’ coffee and tea sourcing” in the light of documented evidence showing instances of severe human rights violations on coffee and tea farms the company sources from.
“On every bag of coffee and on every box of K cups sitting on our grocery store shelves, Starbucks is telling consumers a lie,” said Sally Greenberg, CEO of the National Consumers League. “The facts are clear. There are significant human rights and labor abuses across Starbucks’ supply chain,” she said.
In its 2022 Global Environmental Social Impact report, Starbucks claimed that 98.2% of its coffee and 99.7% of its tea were verified as ethically sourced by its Coffee And Farmer Equity Practices (C.A.F.E.) certification program, which was developed in 2004 and evaluates over 400,000 farmers in 30 different countries.
However, in 2022, a Brazilian prosecutor filed a complaint against Starbucks’ largest supplier of Brazilian coffee. The co-op was illegally trafficking migrant workers and forcing them to work in conditions comparable to slavery. Investigative journalists in Guatemala discovered three coffee farms employing children under 13, working 40 to 50 hours weekly. All of the farms listed above were C.A.F.E. certified by Starbucks.
As Gen Z consumers gain buying power, Greenwashing terms like ‘ethically sourced’ and ‘fair trade’ must be backed by facts. Has Starbucks lost touch with the pulse of the modern consumer? Younger generations are savvy and discerning. They do their due diligence and research a brand’s backstory before buying. They want to know that employees are paid fairly and treated well.
The next months will be critical for Starbucks to regain its position or make crucial changes with positive long-term effect.