Starbucks cafés are often congested with smartphone orders 📲, impatient customers waiting for their beverages 😤, and harried baristas attempting to keep up.
When new CEO Brian Niccol takes over the faltering coffee giant 🌍 on September 9 🗓️, addressing this issue is likely to be one of his first priorities.
In recent quarters, the chain's revenues have been lagging due to operational concerns, according to both investors and management. Starbucks' recent same-store sales decreases can be attributed to a declining consumer base, boycotts, and brand erosion.
Former CEO Howard Schultz, who is still connected with the firm but does not hold an official position, has also criticized the smartphone app. In a June episode of the "Acquired" podcast 🎙️, he stated that it had become Starbucks' "biggest Achilles heel."
Mobile orders make up approximately one-third of Starbucks' overall sales 💰 and are typically more sophisticated 🤔. While add-ons like cold foam or syrups are more profitable 💵 for Starbucks, they also take up more of the baristas' time, irritating both them and customers 🥲.
"I agree with Howard Schultz," says Robert Byrne, senior director of consumer research at Technomic 📊, a restaurant industry research organization. "This is not in the data, but in the storage 🏪. This is where the problem rests.
In late April, current CEO Laxman Narasimhan stated that the firm was failing to satisfy demand in the morning, which was frightening some consumers due to high wait times.
On the "Acquired" episode, Schultz recounted his own experience at an 8 a.m. visit to a Chicago shop. "Everyone shows up, and all of a sudden we got a mosh pit 🎸, and that's not Starbucks," he stated.
Niccol aims to alleviate crowds at Starbucks by improving the efficiency of mobile orders.
Schultz positioned Starbucks as a "third place" between work and home while growing it into a coffee juggernaut 💪. Since then, the business has lost its image as more consumers prefer the ease of mobile ordering and do not stay at its cafes.
"Because it's a beverage 🍵, and because I'm frequently consuming it in the car 🚗 or on the go 🏃♂️, it needs to be incredibly convenient," Byrne told CNN.
Starbucks did not make substantial changes to its operations to accommodate the shift in consumer behavior 🔄.
In 2017, Schultz stepped down as CEO for the second time, and Kevin Johnson took over. Johnson was formerly the CEO of Juniper Networks, a computer business, before joining the coffee chain as COO. During his tenure, Starbucks invested in technology and increased digital sales, but restaurant operations were already failing when he departed.
Schultz returned as temporary CEO after Johnson's retirement in 2022 🗓️.
"The company did not do a good job of anticipating the technological refinements needed to avoid what was happening," Schultz told reporters. "The stock was at a record high 📈, but the company was not investing ahead of the curve 🔄, not paying attention to the velocity of the mobile app 🚀 and what it was becoming until it was too late ⌛."
Shareholders have expressed unhappiness with digital orders and believe it is an important issue for Niccol to solve 🚨.
"The problem you have in New York City 🌆, for example, is the wait time ⌛," said Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments, which owns shares of both Starbucks and Chipotle. "Mobile orders take precedence over in-store orders 🍽️. [Niccol's] will have to flip that way to persuade consumers to spend more time 🕰️ and money 💵 in shops."
The mobile-order glitches have increased the burden on baristas 🧑🍳. Burnout, spurred in part by the app 🔥, inspired some employees to unionize, beginning in 2021.
This November, Starbucks Workers United, which now represents workers at around 450 of the chain's U.S. outlets 🇺🇸, urged the corporation to turn off mobile ordering 🚫 during promotions 🎉. (Starbucks stated that the adjustment was already being implemented 🔄.)
Niccol's new company, Chipotle, faces a different challenge with digital sales.
In the last quarter, internet orders accounted for 35% of the company's sales. The pandemic prompted a move to internet ordering, which has persisted, with digital orders increasing from 18% in 2019 to 📈 today.
When Niccol joined Chipotle in 2018, most locations had already implemented a second prep line exclusively for digital orders. This was done to minimize bottlenecks as online sales became more essential to the business 💼. In the same year, Chipotle introduced "Chipotlanes," drive-thru lanes dedicated to online order pickup.
During Niccol's six-and-a-half years at Chipotle, he and his executives increased digital sales with various promotions, including sports stars' favorite orders, limited-time specials, a rewards program, and the long-awaited arrival of quesadillas 🌯. Quesadillas became a digital-only option due to their potential to slow down operations 🕰️.
Chipotle has partnered with robotics startup Hyphen to explore automation for burrito bowls bought through its mobile app.
Starbucks is working to enhance baristas' job experiences and speed up service.
Under Schultz's leadership, Starbucks implemented a reinvention strategy in 2022, addressing bottlenecks with new equipment and steps to improve service ⏩.
Narasimhan has mostly followed that method 🗺️. In February 🗓️, the mobile app began displaying order progress 📲, allowing consumers to anticipate when their beverages will be available 🕒. In late July, Starbucks launched its "Siren Craft System" 🧜♀️ across North America 🌎, a set of procedures to make beverages quicker ⚡ and baristas' duties simpler 💪.
But the situation for Starbucks may demand more serious solutions 🚨.
The equipment deployment has been gradual, with around 40% of North American facilities projected to install new machinery by the end of fiscal 2026. Accelerating that schedule ⏩ might lower service times in half 🕑, as promised at the investor day 📅 in 2022, and relieve the load on baristas 💆♂️.
"It's not an easy lift by any means 🏋️♂️ to do that; it will take time ⏳, training 📚, and investment 💸," TD Cowen analyst Andrew Charles said.
"In our view 👀, Brian has tremendous credibility 🎖️, where if he tells investors, 'This is the answer to the problem we're having,' and can explain why he believes that 💬 — he's going to get a pass 🏆," Charles told reporters.