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Mobile order pickup area for Uber Eats and Doordash delivery at Starbucks, Queens, New York.
Lindsay Nicholson | UCG | Universal Images Group | Getty Images
It has become a common sight in Starbucks Coffee shops: A crowded counter with mobile orders, frustrated customers waiting for their drinks, and exhausted coffee shop workers trying to keep up with it all.
Solving that problem is likely to top new CEO Brian Niccol's to-do list to turn around the struggling coffee giant when he takes office on Sept. 9.
Investors and executives alike have pointed to operational issues as one reason for the chain’s slowing sales in recent quarters. Other reasons for the recent same-store sales decline include consumer weakness, boycotts and the deterioration of the Starbucks brand.
Former CEO Howard Schultz, who lacks a formal role with the company but remains involved, also pointed the finger at the mobile app, saying it had become “Starbucks’ biggest weakness,” on an episode of “The Voice.” “Acquired” Podcast In June.
Mobile orders account for nearly a third of Starbucks’ total sales, and they tend to be more complicated. While add-ons like cold foam or syrups are more profitable for Starbucks, they tend to consume more of the baristas’ time, frustrating both them and customers.
“I agree with Howard Schultz,” said Robert Byrne, senior director of consumer research at restaurant market research firm Technomic. “This isn’t about the data — it’s about the store. That’s where the problem lies.”
Keeping up with mobile growth
In late April, he became the current CEO. Lakshman Narasimhan said the company was struggling to meet demand in the morning – turning some customers away due to long wait times.
Schultz said he encountered the problem himself when he visited a site in Chicago at 8 a.m.
“Everyone shows up, and all of a sudden we've got a mosh pit, and this isn't Starbucks,” Schultz said in the episode “Acquired.”
Making mobile ordering more efficient is one of the main ways Nicole can reduce congestion at Starbucks.
When Schultz was building Starbucks into the coffee giant it is today, he positioned it as a “third place” between work and home. The chain has since lost that reputation as more customers embrace the convenience of mobile ordering and opt out of its coffee shops.
“Because it's a beverage, and because I consume it frequently in the car or on the go, it has to be very convenient,” Byrne said.
But Starbucks also hasn't made major adjustments to its operations to anticipate this shift in consumer behavior.
In 2017, Schultz stepped down as CEO for a second time, handing the reins to Kevin Johnson. Before joining the coffee chain as COO, Johnson served as CEO of Juniper Networks, a technology company. Under his leadership, Starbucks invested in technology and continued to grow digital sales, but restaurant operations were already struggling when he left the company.
Schultz returned as interim CEO when Johnson retired in 2022.
“The company didn’t do a good job of anticipating the technological improvements that would have been necessary to avoid what was happening,” Schultz said. “The stock was at an all-time high, the company wasn’t investing in the future, and it didn’t pay attention to the speed of the mobile app and what it was turning into until it was too late.”
Contributors have also been frustrated with digital requests — and see it as a critical area for Nicole to address.
“The problem you have in New York City, for example, is the wait time,” says Nancy Tingler, CEO and chief investment officer of Lover Tingler Investments, which owns shares in both Starbucks and Chipotle. “Then mobile orders come first over in-store orders.” [Niccol’s] “We're going to have to change that somehow to encourage people to spend more time and more money in stores.”
Mobile ordering issues have added to the pressure on coffee shop workers. Fatigue caused in part by the app has helped inspire some employees to form a union, starting in 2021.
Last November, the Starbucks Workers Union, which now represents workers in about 450 of the company’s U.S. stores, pressured the company to stop offering mobile ordering during promotions. (Starbucks said at the time that it was already in the process of making the change possible.)
Harnessing the power of Chipotle
Digital sales don't pose the same problem for Nicole's current employer, Chipotle.
In the last quarter, it accounted for 35% of the company's revenue. Came from online orders.The pandemic has led to a shift to online ordering that has continued, with the share of digital orders rising from 18% in 2019.
When Nicole joined Chipotle in 2018, most of its restaurants had already installed a second prep line dedicated to digital orders, aiming to avoid bottlenecks as online sales became more important to the company. That same year, it also began adding drive-thru lanes just for online orders, which it called “Chipotlanes.”
During the six and a half years that Nicol and his executives have been at Chipotle, they have successfully boosted digital sales through various promotions: sports star-favorite orders, limited-time deals, a rewards program, and the long-awaited launch of quesadillas. Most notably, quesadillas became a digital-only option because they would otherwise have slowed operations.
Chipotle has also tested automation for making burritos ordered through its mobile app through a partnership with robotics company Hyphen.
Change the look of your mobile phone
Starbucks has taken steps to speed up service and improve the experience for coffee shop workers.
In 2022, under Schultz's leadership, Starbucks It introduced a reinvention plan that included addressing bottlenecks through new equipment and other measures to speed up service.
Narasimhan has largely stuck to that strategy. In February, its mobile app finally started showing customers the progress of their orders, giving them a better idea of when their drinks will be ready. And in late July, Starbucks rolled out the “SerenCraft System” across North America, a series of processes meant to make drinks faster and make the baristas’ jobs easier.
But the problem facing Starbucks may require more drastic measures.
For example, equipment rollout has been slow, with about 40% of North American locations expected to install the new machines by the end of fiscal 2026. Accelerating that timeline could cut service times in half — as promised at its 2022 investor day — and reduce stress on coffee shop workers.
“It is by no means an easy task, as it will take time, training, investment and [capital expenditure]Andrew Charles, an analyst at TD Cowen, said:
“From our perspective, Brian has such tremendous credibility that if he told investors, ‘This is the solution to the problem we have,’ and could explain why he believes that — he would be excused,” Charles said.
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