June 13, 2024
Finance

Starbucks’ decaf-like start to the year has its leaders re-thinking further price hikes


Starbucks fans may be getting a break on their bills in 2024.

The coffee giant is trying to get its drinkers to come back more frequently, amid ongoing issues like unionization efforts, declining sales growth in US and abroad, and flattening foot traffic.

With US same store sales up only 5% last quarter — and missing analyst estimates on its top and bottom lines on Tuesday — Starbucks will be leveraging pricing and promotional strategies as it looks get to regain its footing this year.

While Americans had previously brushed off higher prices, Starbucks CFO Rachel Ruggeri indicated to Yahoo Finance Live that the company plans to pull back on price hikes.

“We learned a lot in Q1 largely in our US business” when it comes to driving promotional offerings to engage consumers, Ruggeri said. US foot traffic was up a mere 1%, while check size went up 4%, both under analyst estimates.

For its fiscal 2024 guidance, Starbucks’ global and US same-store sales are expected to increase 4% to 6%, both down from the previous range of 5% to 7%. Shares ended Wednesday’s trading session down 1%.

“We were able to successfully drive afternoon with those [promotional] offers as well as increased the membership and our rewards program,” Ruggeri added. Starbucks will tailor its promotions to be more “targeted and surgical” to increase efficiency, she said.

Part of the plan is to leverage artificial intelligence to personalize promotions to different cohorts of reward members, targeting customers with deals during different parts of the day, and suggesting food to orders, all of which can boost traffic and ticket size.

Its US reward program was a rare bright spot in its Q1 results. During the quarter, active US reward members, who typically spend more, jumped 13% year over year to 34.3 million.

Starbucks workers are striking due to overwhelming demands and understaffing at many of the stores in New York, USA, on November 16, 2023. They are exerting pressure to improve working conditions, especially during promotions like Red Cup Day, and are seeking contracts that stipulate conditions such as pay, benefits, and staffing levels. (Photo by Victor M. Matos/Thenews2/NurPhoto via Getty Images)

The efforts come while ongoing issues like conflicts with its union are still in the backdrop.

Union walkouts took a toll this past quarter, especially during its coveted Red Cup Day. Starbucks Workers United dubbed the walkout the “Red Cup Rebellion”.

Per Placer.ai, foot traffic on the day was less than half of that compared to a typical year.

In 2020, 2021, 2022, store visits during Red Cup Day jumped 74.4%, 65.0%, and 81.0% compared to the daily visit average in the preceding five days. In 2023, visits on Red Cup Day were up only 31.7%.

On a call with investors, Starbucks’ CEO Laxman Narasimhan said that based off an independent assessment, “there has been no union busting playbook at Starbucks.”

Noting that just 4% of Starbucks’ US portfolio have voted to unionize, Ruggeri reiterated that the company “still believe(s) a direct relationship with our partners is best because it allows us to deliver the brand experience.”

However, Starbucks is “committed to be able to have a constructive dialogue and a path forward to work with the unions and with all partners,”she said.

Yet, Starbucks Workers United tells a different story.

“We welcome any effort to cultivate a relationship between the company and its partners that advances bargaining and allows for organizing free of intimidation and retaliation,” Starbucks Workers’ United shared in a statement with Yahoo Finance. “There’s been no indication thus far that they’re sincere in their statement to change their stance about the union.”

As part of a growth strategy announced following its Q4 results in November, Starbucks aims to double workers’ 2020 hourly incomes by 2025.

The union, on the other hand, feels like they are being left out of the equation.

Their statement went on to say that Starbucks tends to “dismiss workers, withhold new benefits from union workers and engage in other retaliation against union members,” adding that it believes the coffee giant is “wielding these ‘investments’ as anti-union weapons.”

Shares of Starbucks are under pressure, down more than 15% compared to a year ago, compared to S&P 500’s 17% gain.

Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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