Starbucks is struggling mainly due to several interconnected challenges: rising competition, changing consumer behavior, economic pressures, and strategic missteps.
Key Reasons for Starbucks' Struggles
- Starbucks announced plans to close about 1% of its North American locations (around 400 stores) and lay off 900 corporate staff as part of a $1 billion restructuring effort. The closures target stores that are either financially non-viable or fail to meet customer expectations. This marks a shift from Starbucks' previous aggressive expansion strategy.
- The company is losing customers particularly in the segment earning under $100,000, where high prices have reduced visit frequency. Inflation and economic uncertainty have made Starbucks' premium pricing less affordable for many consumers.
- Changing consumer habits after the Covid-19 pandemic led to fewer visits to urban locations, which were previously profitable. Also, increased competition from independent coffee shops and newer brands like Street Coffee Blue Bottle and Dutch Bros is eroding Starbucks' market share.
- Starbucks' product and service issues have hurt its appeal. The menu became overly complex, which slowed service and affected customer experience negatively. The reduction of food choices and return to simpler menus is a recent corrective measure.
- The company has faced problems outside the US as well, such as lagging expansion in China due to strong local competitors like Luckin Coffee.
- Store environment issues, such as cleanliness and safety concerns (bathroom access policies, stores becoming less welcoming), have impacted Starbucks' reputation as a "third place" between home and work, reducing customer loyalty.
Leadership and Strategy
- CEO Brian Niccol, who took over in September 2024, is attempting to revitalize Starbucks by closing underperforming stores, cutting corporate jobs, simplifying the menu, and improving store ambiance to recapture customers. These efforts involve revamping store designs to create cozier, more inviting spaces and re-focusing on coffeehouse culture.
- Despite these efforts, Starbucks has seen six consecutive quarters of same-store sales declines in the US, a 9-12% drop in stock price in 2025, and ongoing operational challenges.
In summary, Starbucks' struggles stem from economic headwinds, high prices, loss of customer traffic especially in urban areas, increased competition, and operational missteps that hurt customer experience and loyalty. The company is actively restructuring to address these issues but has yet to see a full recovery.
