In recent years, the arrival of fall has been a reason for many customers to scurry to their local Starbucks to get their pumpkin spice latte fix.
But not this year.
On Tuesday, after the market closed, the coffee giant reported preliminary quarterly earnings showing a steep decline in same-store sales. Starbucks said global same-store sales fell 7% for the fourth-quarter that ended in September, with a decline of 6% in North America and a 14% drop in China.
Overall, for the full fiscal year, the company reported “a pronounced traffic decline.”
The dismal news came a week before the company’s scheduled earnings announcement. Starbucks’ stock was down more than 4% in aftermarket trading.
The results further reveal the challenges facing the company and its new leader, Brian Niccol, who was wooed away from Chipotle to become Starbucks’ chair and CEO with a jaw-dropping compensation package that could top $100 million.
In a video message, Niccol, who officially took over in early September, said the results showed that it was “clear we need to fundamentally change our strategy so we can get back to growth.”
Throughout the COVID-19 pandemic, Starbucks was a consistent big winner, expanding its loyalty programs and drive-through capabilities while Gen Zers ordered ever more complicated iced beverages.
But whether because of increased competition from other rapidly expanding coffee shops, consumers cutting back on nonessential spending or the various boycotts against the company, Starbucks is struggling.
Starbucks has been under pressure for awhile. Following two quarters of consecutive declines in sales and a stock price that dropped nearly 30% in six months, the board of directors decided this summer to abruptly replace its then-CEO, Laxman Narasimhan.
In the most recent quarter, Starbucks said its efforts in North America to entice consumers to visit and spend more through expanded product offerings and frequent promotions and marketing through its mobile app “did not improve customer behaviors” and resulted in lower-than-expected performance.
In China, a market where Starbucks has a rapid expansion plan, same-store sales dropped steeply because of the competitive environment, the company said.
To fix Starbucks, Niccol said in a video the company needed to, among other things, “address staffing in our stores, remove bottlenecks and simplify things for our baristas,” while improving the mobile system for ordering and paying so it did not overwhelm the cafes.
“We will simplify our overly complex menu, fix our pricing architecture and ensure that every customer feels Starbucks is worth it every single time they visit,” Niccol added.
Starbucks said it would provide more details on its turnaround plan during its earnings call Oct. 30.
This article originally appeared in The New York Times.
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