Starbucks (SBUX) CEO Brian Niccol, who was previously CEO of Chipotle, is planning to make a major change that will make the coffee giant a lot less generous during a time when consumers are grappling with high prices across the fast-food industry.
Starbucks customers should prepare to pay full price for their morning cup of joe as the company has reportedly switched gears on its strategy by quietly pulling back on discounts and promotions, according to a new report from the Wall Street Journal.
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While the company is cutting the number of broad deals it offers to customers, including during the holiday season, the Journal claims that Niccol is instead capitalizing on promoting seasonal drinks through advertising.
Starbucks faces backlash for inflated prices
Starbucks' move came after customers complained recently about multiple price increases for menu items at its stores.
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Amid the harsh feedback, Starbucks rolled out discounts for its rewards members this summer, such as 50% off of one drink after placing an order through the company’s app. Starbucks also offered rewards members two drinks for $10 and four drinks for $20 all day on Aug. 31.
Starbucks recently reported a decline in sales
Starbucks' recent decision to abandon discounts and promotions comes after the company revealed in its third-quarter earnings report for 2024 that it is struggling with declining revenues and sales.
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In the report, Starbucks said that its net revenues during the quarter shrunk by 1%, compared to the same quarter last year, while its U.S. comparable store sales decreased by 2%.
During an earnings call on July 30, which discussed the report, Starbucks Chief Financial Officer Rachel Ruggeri claimed that despite the recent declines, customers responded well to the company’s recent promotional offers, which helped to drive traffic in its stores. She also stated that the discounts were part of the company’s efforts to boost its Starbucks Rewards program, whose members account for 60% of the company’s revenue.
“The majority of our promotional efforts we're focused on driving growth in our Starbucks Rewards membership because we know that those members tend to increase their value for us over the lifetime,” said Ruggeri during the call. “It's a more efficient way for us to promote.”
During the call, however, the company warned that it has been “very careful” about the offers it makes to customers due to “the premium-ness of the brand.”
Starbucks’ recent move is a major shift from a popular fast-food trend
Many fast-food chains across the country have been increasingly relying on discounts to attract frugal customers back into their stores. Many customers have recently restricted their spending on fast food to avoid paying inflated prices.
According to a recent survey from LendingTree, 62% of Americans said they eat less fast food due to high prices, and 56% said they opt to make food at home when they want an easy and cheap meal.
More Food + Dining:
- Chipotle tests a new way to ensure that customers get what they pay for
- Even deals can’t reverse startling trend in the fast-food industry
- McDonald’s is facing the brutal aftermath of price increases
During this shift in consumer behavior, McDonald’s (MCD) rolled out a $5 Meal Deal in late June after it reported a decline in sales. The deal allows consumers to purchase a $5 meal that consists of a McChicken or a McDouble, four-piece chicken nuggets, fries, and a drink.
Related: McDonald’s new $5 Meal Deal isn’t going as planned (so far ...)
The deal was initially set to last for just a few weeks, but it was recently extended into December after it reportedly failed to significantly boost traffic in its stores.
Pizza Hut and KFC, both owned by Yum Brands (YUM) , also launched generous deals amid shrinking sales.
In October last year, Pizza Hut unveiled its $7 Deal Lovers menu, where customers can choose two or more items “for just $7 each.” KFC also introduced its Taste of KFC deals value menu, which starts at $4.99 for one meal.
Both deals failed to boost sales as Yum Brands revealed in its second-quarter earnings report for 2024 that KFC’s U.S. same store sales shrunk by 5% year-over-year, while Pizza Hut’s declined by 1%.
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