One of the brightest moments in many commuters' workday is usually the early morning when they get out for a morning cup of coffee.
Plenty of people may bring their own cup of caffeinated goodness to work, and some might rely on their office's coffee machine. But those who can afford a daily $5 habit — and who like to get outside for 15 minutes — often find themselves at a Starbucks (SBUX) for their coffee fix.
💸💰Don't miss the move: Subscribe to TheStreet's free daily newsletter💸💰
Related: More popular beverage brands file for Chapter 11 bankruptcy
The Seattle-based cafe is so popular among commuters and coffee aficionados because it offers quality and customizable drinks. Sure, you can go out of your way to try to find an independent cafe or roaster, but they're much fewer and farther between, and the quality can vary immensely.
Plus, with 16,000 U.S. locations, there's a Starbucks on just about every corner.
There's a reason you pass so many Starbucks on your daily commute. Starbucks deliberately clusters so many cafes together to edge out the competition. Sure, it may be expensive to operate 35,000 cafes across the world. But when you're as giant as Starbucks, you can afford to. And since the coffee market is so fiercely competitive, giving customers fewer brands to choose from is better for business.
Starbucks has been struggling
Pop into your local cafe, and it may seem like Starbucks operates like a well-oiled machine. Busy baristas manage mobile orders, drive thrus, and meandering lines of hungry and de-caffeinated customers.
But take a closer look, and you might notice not everything operates smoothly at Starbucks.
Particularly since the world began to reopen after the pandemic, Starbucks began to struggle with excessively long wait times. People flooded into cafes for a chance at normalcy. They also took advantage of Starbucks' mobile ordering platform, inundating locations with demand during busy times.
Related: Starbucks makes major change that will delight customers
Some Starbucks were forced to stop accepting mobile orders at peak, prioritizing customers who actually made the effort to go in person and order instead.
Add in the fact that Starbucks offers an almost endless array of customization options, and the pressure on baristas can be crushing.
In 2022, for example, a whopping 25% of Starbucks baristas quit their jobs within three months, compared with just 10% before the pandemic.
Starbucks making changes
The cafe is aware of its issues, and has been vocal about putting over $2 billion into making changes. Its new Siren System, which will be installed in about 40% of cafes by the mid 2020s, helps to cut down on the number of steps to prepare an order, which should free up barista time.
More Restaurants and Food:
- Another bankrupt restaurant chain closes last of its locations
- Costco members split over popular new 'knock-off' drink
- Starbucks makes major change that will delight customers
Change can't come soon enough, though. Starbucks Q4 earnings report indicated same store sales, or the performance of locations in business for over one year, fell by 4%. Visits fell by 6%. In the U.S., visits to cafes fell by 8%.
And Starbucks may be seeing some enthusiasm fall as it removes a popular perk: its discounts and deals.
Discounted transactions decreased by a whopping 40% in Q4.
Related: Popular discount retailer makes a move that will scare Walmart
"We stepped away from discounting and went into more broad-based marketing efforts to demonstrate the craft of our coffee, as well as the experience or the premium experience you get from Starbucks," Starbucks CEO Brian Niccol said. "We saw non-Rewards customers respond with more traffic and more transactions, which was really nice to see how that progressed kind of quarter to quarter."
Broadly speaking, that means that Starbucks customers are likely to pay a little more for their drinks without as many deals available.
"As we've shifted out of discounts into more broad-based marketing, that's helped us reach a broader base of customers," Starbucks CFO Rachel Ruggeri explained to investors.
Less discounts may mean more profits for Starbucks, but it's likely to translate into higher costs for customers.
"So, we see that removal of the discount or shifting of the discount, we're still discounting, but shifting the discount as a way for us to strengthen ticket but also strengthen the overall proposition as we speak to more customers more broadly," she added.
