Many investors and financial observers regard Starbucks (NASDAQ: SBUX) as one of the great American success stories of the last 50 years. In 1977, Howard Schultz opened the first Starbucks in Seattle. A few decades later, Starbucks had hundreds of locations nationwide and had become an essential "third place" where Americans of all stripes could commune. However, Starbucks has been struggling lately, and CEO Brian Niccol is responsible for fixing it.
The company is coming off four consecutive quarters with declining sales, and its Q2 fiscal 2025 earnings report was very underwhelming. Niccol had the unenviable task of informing shareholders that the company's net earnings were $384.2 million, a 50% decline from the previous year, on the April 29 earnings call. That ratchets the pressure up on him, even if forces beyond his control are contributing to the decline.
Don't Miss:
- Peter Thiel turned $1,700 into $5 billion—now accredited investors are eyeing this software company with similar breakout potential. Learn how you can invest with $1,000 at just $0.30/share.
- Invest early in CancerVax's breakthrough tech aiming to disrupt a $231B market. Back a bold new approach to cancer treatment with high-growth potential.
No one can deny that President Donald Trump's tariffs have unsettled the economy. Many consumers have reacted to the uncertainty by cutting back on unnecessary expenditures like coffee and dining out. Yet, Niccol views the fact that Starbucks’ earnings were down for two consecutive quarters before Trump took office as evidence of structural problems that run much deeper.
"We're not just building back our business," he said on the earnings call. "We're building back a better business." That's Niccol admitting Starbucks had lost its way and needed to make a major course correction. Effective CEOs know it's a combination of factors and mistakes that cause a company's earnings to drop by 50% from one year to the next, and Niccol had certainly come to that realization.
"We had his strategy that I think was just a misfire of a purpose-driven store," Niccol told Axios. During that interview, Niccol cited small decisions that had a large impact, such as reducing the number of seats in Starbucks locations, as part of a series of mistakes that proved to be a turnoff for Starbucks' loyal consumers. He has since shifted the company's focus from efficiency to re-establishing the chain's connection with its community.
Trending: GoSun's Breakthrough Rooftop EV Charger Already Has 2,000+ Units Reserved — Become an Investor in This $41.3M Clean Energy Brand Today
Niccol unveiled part of the plan to rebuild this connection in September. The plan calls for Starbucks to work on expanding its menu, increasing food quality, and raising the level of service. According to Niccol, part of that effort will include converting from Starbucks’ menu of largely frozen, pre-packaged foods to products that would be baked fresh on location.
That's not to say Niccol is abandoning efficiency. Starbucks is also introducing a "Green Apron Service Model," which aims to serve every customer's drink no later than four minutes after they order. Those kinds of small changes resonate with consumers who value quality. The hope is that this will help Starbucks re-establish its role as a "third place" for both new and returning customers.
It's too early to tell if Niccol's turnaround plan will work, but two things are for certain: One, Starbucks' old formula wasn't working anymore. Two, the definition of insanity is doing the same thing over and over but expecting different results. Niccol is betting on several small changes to deliver a big turnaround for Starbucks. It won't happen overnight, but at least the process has started.
Read Next:
- Maximize saving for your retirement and cut down on taxes: Schedule your free call with a financial advisor to start your financial journey – no cost, no obligation.
- If You're Age 35, 50, or 60: Here’s How Much You Should Have Saved Vs. Invested By Now
Image: Shutterstock
