Starbucks' sales dip as customers seek better-priced coffee elsewhere

A growing number of customers are abandoning Starbucks in favor of alternative coffeehouses selling reasonably priced drinks and food.

Last week, CNN reported that Starbucks sales dropped 3% globally at stores open for at least a year, including a 2% drop in its North America market. Total transactions at North American stores open for at least one year fell 6% last quarter — which CNN explained was offset, in part, by higher prices.

The recent statistics mark Starbucks’ second-straight quarter of sales declines.

CEO Laxman Narasimhan told CNBC that more consumers are buying the brand’s line of packaged coffee at grocery stores, but a “challenging consumer environment” continues to threaten sales at its cafes. Starbucks — which has long been a welcoming “third-spot” for customers to lounge, work or socialize in — joins a list of restaurant chains that are experiencing decreased consumer demand due to rising food costs. Earlier this year, McDonald’s sparked a national debate after a restaurant in Darien, Connecticut, charged a whopping $18 for a Big Mac combo meal. The backlash compelled McDonald’s CEO Chris Kempczinski to announce that the company would make affordability a priority in 2024 during a Feb. 5 earnings call. McDonald’s has since released several limited-time offers, including a $5 value meal, in hopes of wooing its customers. Wendy’s, Taco Bell and Pizza Hut are just a few other chains that have followed suit.

In California, Starbucks prices have increased by about 7% on average from February to April 2024, according to Kalinowski Equity Research (KER). That statistic was obtained after analysts compared menu prices at 25 individual restaurant locations before and after California’s $20 minimum wage mandate went into full effect on April 1. KER also found that a venti iced caramel macchiato costs 8.4% more than it did two months ago, while a venti caffe latte costs about 5.5% more than it used to.

In addition to price hikes, Starbucks faces increased pressure from rival drive-thru coffee chains that are attracting more price-conscious customers. Upstarts like 7 Brew Drive Thru Coffee, Scooter’s Coffee, Dutch Bros. and Ziggi’s Coffee are currently dominating the industry with quick service and creative menu options.

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More than 70% of Starbucks’ sales come from mobile app and drive-thru orders at its approximately 9,500 company-operated stores across the nation. The bulk of sales are also from cold coffee beverages, teas and lemonades rather than hot coffee.

Starbucks is hoping to win back customers with its very own value menu, called the “Pairings Menu,” which includes a drink and a breakfast item for either $5 or $6. According to CNN, the company said its new menu is proving to be beneficial and encouraging customers to make more multi-item orders.

Additionally, Starbucks introduced the Siren System, new technology that helps eliminate long customer wait times for cold drinks. The system includes faster blenders and new dispensers for milk and ice are set up in a line, allowing employees to quickly prepare drinks without reaching under or over the counter for key ingredients.

During a call with analysts Wednesday, Narasimhan said the recent plans “are beginning to work.”

“We’re rebuilding the operational foundation of our stores and supply chain,” he added.