May 1, 2024 - Business

Starbucks struggling to meet morning demand

Data: Yahoo! Finance; Chart: Axios Visuals

Starbucks' big earnings miss Tuesday sent shares plunging after the bell —and on Wednesday they just kept falling.

The intrigue: One issue that shook investors was a decline in the coffee giant's U.S. same-store sales, a problem that seemed at least partly attributable to an old Yogi-ism: "Nobody goes there anymore, it's too crowded."

Between the lines: The morning period is crucial for Starbucks, accounting for about half its business.

  • It's "coffee forward," as CEO Laxman Narasimhan noted on the company's earnings call, driven by people caffeinating on their way to work and school. Many have made Starbucks part of their routine.

Yes, but: Starbuck's noticed in the last quarter that during this peak time, the rate of orders started on its app that were actually completed was in the mid teens.

  • In other words, a lot of would-be customers are starting orders on their app but walking away, citing "long wait times" or product unavailability, Narasimhan said.

By the numbers: U.S. same-store sales fell 3% in the quarter, with traffic down 7%.

Reality check: Higher traffic concentration in the mornings isn't the only factor leading to long wait times.

  • The company is rolling out new technologies to stores to improve operational efficiencies, while supply chain issues have contributed to product shortages for popular menu items, executives noted.

Zoom out: Starbucks acknowledged other headwinds as well, with executives pointing to cautious consumers in the U.S., particularly with its more occasional customers.

  • It's also facing increased competition in China, where same-store sales fell an ever bigger 11%.

The bottom line: Starbucks cut its sales outlook for the second time this year.

  • Its stock closed down nearly 16% Wednesday, after investors had a full day to digest the results.
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