For the recent quarter ending March 31st, Starbucks recorded a one percent decline in revenue, a comparable store sales drop of 4 percent and 14 percent lower earnings. Company shares are down 25 percent year-to-date.
The current situation was reviewed in an analysts’ call hosted by Rachel Ruggeri, Executive Vice- president and Chief Financial Officer. Ruggeri indicated that “although coffee is core to who we are” the Company intends introducing new baked foods including a blueberry muffin given that half of sales are generated before 10H00 in the morning, Starbucks may consider including more protein including eggs in their offerings.
Generally, QSRs have concentrated on reducing the number of menu items to increase throughput and reduce waiting time by installing enhanced equipment, trained and well-motivated and renumerated workers and above all multiple drive-thru lanes. How about a dedicated lane for standard fresh-brewed coffee with pointing to the display for “one of those”? This would avert standing behind an aficionado ordering an exotic brewStarbucks is essentially a store-front chain that caters to urban residents and commuters. If Ruggeri wants to know how to improve her company performance, attract more customers she needs to spend less time on blueberry muffins and look at the long lines at airports and locations where commuters congregate. Inordinate waiting to attain “caffeine fix” but with limited time is not a business model to attract and retain customers. A further restraint to increased traffic is the disinclination for commuters to pay exorbitant prices for coffee and breakfast items. Keurig machines are now ubiquitous in offices and homes and offer standard and exotic brews with speed, convenience, and at a substantial lower cost. Then there is always ‘Dunkin or a clone!
Rachel Ruggeri CFO Starbucks CFO (right) interviewed on CNBC Squawk Box |
It is difficult to envisage how Starbucks will be able generate a cost saving of $4 billion over four years operating 16,000 stores in the U.S. and 22,000 internationally by imposing a one-size fits-all approach to menus, pricing, and service. This is exemplified by China the fastest growing market for Starbucks. Home-grown competitors are expanding at a faster rate than Starbucks especially in second and third-tier metro areas with both coffee and teas accompanied by regional delicacies.