North America, Starbucks’ largest market, saw a 1 percent dip in comparable store sales, with U.S. locations posting a 2 percent decline, mainly due to a 4 percent drop in transactions, though average spending per visit rose by 3 percent, according to the company’s financial results.
In response to the results, Starbucks CEO Brian Niccol announced a strategic pivot away from reliance on technology and automation, opting instead to invest in store labor.
“Over the last couple of years, we've been removing labor from the stores, I think with the hope that equipment could offset the removal of the labor,” Niccol said during Tuesday’s investor call. “What we’re finding is that wasn’t an accurate assumption with what played out.”
Niccol said additional staffing is now critical to improving the customer experience, which he has made a main priority since assuming leadership last September.
The company has already piloted increased staffing at five stores and plans to expand this to between 1,500 and 2,000 U.S. stores by May, with a target of reaching around 3,000 stores by year’s end. “We’re banking on some growth to come with the investment in the labor and the store experience,” Niccol said.
This labor-focused strategy marks a departure from Starbucks’ previous push toward automation, most notably with its Siren system—a suite of technology and equipment designed to streamline drink-making, which was first rolled out in 2022.
“We believe this evolved, labor-focused approach has more potential to improve throughput and connection while minimizing future capital expenditures on equipment,” Niccol said during the recent earnings call.
While the company had initially planned for a broad deployment, it will now install the Siren system only in “very targeted” stores, such as those with high drive-through volumes and overall sales.
The move comes as Starbucks’ operating margins have reduced for five consecutive quarters, falling 590 basis points year-over-year to 6.9 percent in the second quarter, a decline attributed in part to increased labor costs supporting the company’s “Back to Starbucks” plan, according to the company’s press release.
Despite the disappointing financial results, Niccol said he was optimistic about the company’s turnaround efforts.
“My optimism has turned into confidence that our 'Back to Starbucks' plan is the right strategy to turn the business around and to unlock opportunities ahead,” he said.
He pointed to early indicators of recovery, including improved partner engagement, record-low turnover, and a return to positive comparable sales in Canada.
According to Niccol, in response to customer feedback, Starbucks recently removed sugar from its matcha drink, which lifted sales by nearly 40 percent compared to last year. The company also soon expects to fully roll out its automated Clover Vertica brewers, which are already in 70 percent of stores, and bring back this summer's best-selling drinks, including summer berry refreshers with pearls, and launch the new limited-time iced horchata oat milk shake, Niccol said.
Cathy Smith, Starbucks’ new chief financial officer, said that the company’s financial performance is “far from Starbucks potential,” but said ongoing investments are laying the foundation for durable growth.
“We are developing new muscles to test, iterate and scale quickly, in service of long-term, durable growth and strong returns on invested capital,” Smith said, according to the company’s press release.