The Long Slow Decline of Starbucks

How do businesses decline?

Sometime because a competitor comes along and puts them into bankruptcy like what Netflix did with Blockbuster

Other times, it stays alive but transforms into something else. Something much worse. Like the case of Subway. Remember Subway? Early 2000s, it was the healthy, tasty option. Fresh-baked bread in-house. Good prices. Then it tanked. Quality dropped. Stores popped up like weeds. The vibe inside? Horrible.

Hard to imagine for a lot of people, but 20 years ago a Starbucks was an amazing place to hang out. People were social, they had real coffee, maybe even real cups, and it was so comfortable to sit down and spend time. You could work there and it was perfect.

We’re watching the slow transformation of a business. It will most likely always be around, like Subway, but it will be something else.

Starbucks Stock Tanking

This week Starbucks stock plummeted over 15% in one day. In its North American and US operations, a 3% decline was reported in same-store sales, with a foot traffic decrease observed at 7% year over year, despite a ticket size increase of 4%. Expectations, set across the board, were missed: revenue, earnings, and same-store sales growth all came in lower than anticipated. Customers had reduced both the frequency of their visits and the size of their orders.

Starbucks leadership offered a number of excuses. Rachel Ruggeri, Starbucks CFO said: occasional customers pinched pennies this quarter, skipping their non-daily Starbucks runs in favor of saving. This is also the reason McDonalds gave for their decline in sales. People see how much fast food costs now and are skipping it

“Fast food menu prices have risen considerably faster than inflation over the last decade, with most chains price gains far outpacing the ~40% gain in average hourly earnings over the same time frame.”

That’s because also mentioned the boycotts over Gaza

The company said it faces operational challenges, especially during the busy morning hours. Issues like long wait times and product shortages have led even loyal Rewards members to abandon their orders midway.

But I think there’s a bigger problem here.

In This Newsletter

1) Reasons for Starbucks' Decline: Here is what I noticed recently about going there and why this chain is in trouble.

2) Starbucks' Transformation of American Coffee Culture: Starbucks has played a crucial role in enhancing America's coffee ecosystem. Before its emergence, coffee in America was generally poor. Starbucks established a baseline for quality, ensuring that no coffee sold in America would be inferior to what they offered. This represents a significant achievement.

3) The Future of Starbucks is International: The real home of Starbucks is International as an American export. It should be serving coffee milkshakes to foreigners.

10 Reasons Why Starbucks Sucks Now

1) Grab and Go: Starbucks evolved its business model to cater more efficiently to the "get and go" style of coffee consumption, especially noticeable with the rise of mobile ordering and drive-thru services. This has accelerated after Covid. It makes the place uglier and feels cheap.

2) It's Expensive, But It Shouldn't Be: Prices have risen everywhere, I get it. However, Starbucks has increased the price of a cup of coffee and banana walnut bread from $8 to nearly $11 in just two years. That's a steep increase. For the quality they serve and atmosphere, Starbucks shouldn't be hiking its prices like this.

3) It Isn’t A Comfortable Place to Remote Work

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