Starbucks' CEO is taking steps to address a long list of problems

For 32 years, Greg Tutunjian, 73, has picked up his coffee at Starbucks. He is partial to its dark-roasted Red Eye, but begins to question his loyalty to the chain that serves it.

While waiting for his order, Mr. Tutunjian watches impatiently as baristas whip up iced brown sugar oatmeal shaken espresso or other frothy, icy, caramel-topped drinks for drive-thru or mobile-app orders. Minutes ticked by before he was finally served his coffee (dark-roast coffee with a shot of espresso).

More upsetting for Mr. Tutunjian is when Starbucks' mobile app tells him that a bag of his favorite coffee beans — Komodo Dragon — is in stock when it isn't.

“I'll go to four or five Starbucks in my local area and have the same experience. “I check the app before I go in and it says it's there, but when I get there, the people working there say, 'Oh, we don't use or see the app,'” said Mr. Tutunjian, a software consultant. Newton, from Mass. “I walked out empty-handed.”

Mr. Tutunjian's frustration is now Brian Nichol's problem.

Mr. Nichol took over as Starbucks chief executive on Sept. 9 and quickly pointed out what was wrong with the company. In his first week on the job, he panned the Starbucks store experience in a letter posted on the company's website: “It can feel transactional, menus can feel overwhelming, product inconsistent, waits too long or handoffs too busy.”

Numbers carry him. Last week, the coffee giant issued a preliminary report that showed a 7 percent drop in global same-store sales for the fourth quarter amid “a pronounced traffic decline” — down 10 percent from a year earlier. The company, in a sign that Mr. Nichols will need time to fix Starbucks' problems, suspended its financial guidance for fiscal 2025.

Investors will hear Mr Nicholl's initial attempts to cure the disease on Wednesday after his diagnosis. The company will formally report its fourth-quarter earnings this afternoon, and expectations are high for Mr. Nichol, who was propelled from a successful run at Chipotle with a compensation package worth more than $100 million.

But Starbucks faces challenges that won't be easy to solve.

Some customers, already mired by inflation, are just sticking with $8 lattes, while others are boycotting the chain for various reasons. Still others have switched to the coffee shop competitors that are popping up across the country.

Starbucks is also a victim of its own success. It pioneered the customized coffee drink, allowing customers to add an extra shot of espresso, two pumps of sugar-free vanilla syrup and matcha creme cold foam. A simple cup of coffee has become an expression of individualism or calorie abstinence. But making that eight-ingredient drink can take minutes. And more than a third of transactions in the most recent quarter came from mobile app orders, which can lead to longer waits for customers ordering in person.

“The traditional Starbucks experience is being greeted by name, having a friendly conversation with the barista and being offered a drink that tastes good,” said Ari Bray, a barista at one of about 500 stores near the University of Washington in Seattle. Countries that are united. “When there's a 15-minute wait and nobody can talk to you because they're so rude, it's not a good experience for anybody.”

Some customers pine for the 1990s, when Starbucks cafes encouraged customers to curl up in a comfy chair or chat with friends while sipping lattes. Like other restaurant chains in the post-pandemic world, Starbucks has focused a lot on drive-thru and pickup orders. Some of its stores have reduced or eliminated seating.

“My first date was at Starbucks. One of my favorite things to do is get coffee and read a book at Starbucks,” says Nicole Simone, a 39-year-old musician in Los Angeles. “Now it feels like a fast-food restaurant. It has the same barrenness as a Taco Bell or McDonald's.”

Analysts expect Mr. Nicol to first tackle the problems facing the North American stores, which account for about 43 percent of the company's roughly 40,000 stores worldwide and about three-quarters of its revenue.

But China, where Starbucks has more than 7,300 stores and a rapid expansion plan, is a sore spot for the company. Same-store sales fell 14 percent in the fourth quarter, according to preliminary earnings. China's sluggish economy, combined with heightened competition from other coffee and tea shops in the country, has led some analysts to speculate that Starbucks may slow its expansion plans or even shut down its China business altogether.

Starbucks declined to comment for this article, saying the company was in its quiet period ahead of earnings results. But in a video posted last week, Mr. Nicol said the company “needs to address staffing in our stores, remove barriers and make things easier for our baristas.” He called for improved mobile systems for ordering and payment so that mobile orders do not overwhelm cafes.

According to Bloomberg News, Mr. Nicholl is moving quickly to simplify the menu, even removing the olive oil drinks promoted by the company's longtime leader, Howard Schultz.

Still, customers hoping to pay less for their pumpkin spice lattes or pink drinks are out of luck. This summer, the chain offered certain drinks for half-price, leading to long lines and waits. Analysts expect the company to end such promotions and discounts.

Instead, they hope that Mr. Nicole will strive to elevate Starbucks above the competition by restoring it to a premium brand and experience. One of the first changes he made in the company's executive ranks was global chief brand officer, Tracy Lieberman, who had worked with him as Chipotle's vice president of digital marketing.

“They're a premium brand, and I think they'll lean more toward that,” said Peter Saleh, an analyst at investment banking firm BTIG. He wouldn't be surprised, though, he said, if the company occasionally threw some free stuff into customers' mobile accounts, like Chipotle has done with its rewards program.

To reduce wait times for drinks and make life a little better for frantic baristas, Mr. Saleh hopes the company will roll out its so-called siren system a little faster. Introduced two years ago, the system is intended to make tasks easier and faster, cutting the time it takes to make a Frappuccino by a third, the company claims.

But in most cases the system requires closing stores to redesign work space layouts and train employees. So far, about 10 percent of Starbucks stores have installed it.

“Brian doesn't have an opinion yet on speeding up the Siren rollout, but if it really does what it's intended to do and it can significantly reduce the time it takes to make Frappuccinos, that's a lot of man-hours and efficiency gained right there,” Mr. Saleh said.