Starbucks CEO has shared “disappointment” against company’s Q2 results – weaker-than-expected quarterly earnings and revenue, fueled by operative inefficiencies amidst global economic uncertainty
The coffee giant released its Q2 performance sheet on Tuesday for its 13-week fiscal ended on March 31, 2024. The report led to flurry of debates and discussions, contemplating future of one of the most celebrated coffee brand in the world. Starbucks reported weaker than expected quarterly earnings and revenue, its shares fell 15% on Wednesday, closing at 74.4 USD which is the lowest in two year.
Starbucks chief executive officer, Laxman Narasimhan, highlighted environmental influences leading up to the disappointing same-store sales which have globally declined 4% further decelerating the consolidated net revenue which has declined 2%, to $8.6 billion.
The persistent decline in sales is attributed to rigid consumer behavior concentrated in two biggest Starbucks drinking countries, United States and China – both are under staggering financial difficulties. At the end of Q2, stores in US and China comprised 61% of the company’s global portfolio, with 16,600 and 7,093 stores in US and China, respectively.
Other than the economic volatilities observed in most developed countries, Starbucks officials have also cited complex operative environment behind plummeting product sales and falling traffic.
Operative infractions & global volatilities led to disappointing results
Operative inefficiencies and supply-side issues have been, as Narasimhan says, “taken under due consideration”. Starbucks online application has interfered in managing timely deliveries. The ramping sales in offline chains have overburdened baristas to timely deliver at-home services. More than 60% of the company’s morning business comes from reward members who use the app to place order.
But only a fraction of that number taps on order placement link, rest orders rot inside the cart but never make it to the end purchase, citing long wait times and product unavailability. One in eight customers terminate their orders midway which has drastically contrived company’s overall sale results. The company’s same store sales fell 4% as traffic to its cafes declined 6% in the quarter.
Aside from factors which fall directly under Narasimhan’s jurisdiction to control and combat, there are some headwinds which don’t fall under his turf. These issues are imparted by global economies which make consumers cautious of their spending thereby impacting business traffic results. “Consumers are generally are still holding fairly well, it is these customers at the lower end of the income scale who have begun to falter first”, Citigroup CEO Jane Fraser put it.
In US, store sales decreased 3% as traffic deteriorated 7%. In China, Starbucks second largest market, same stores sales plunged 11% credited to slower than expected consumer-recovery from the pandemic. Operating income decreased to $216.3 million in Q2 FY24 compared to $262.1 million in Q2 FY23.
Measures taken to resolve inefficiency and improve results
Narasimhan, keen to ensure uninterrupted consumer experience, laid out a number of ways the brand is increasing efficiency to speed up future results. The first is to maintain a regular rollout of “siren system” a drink machine with a custom made ice and milk system all within the reach of a single barista to meet target sales.
Except of the sinking sales, problem of unhealthy supply chains has also disrupted company from restoring enough material to meet the demands of customers in real time. As a result, the company CEO has ramped up supply chain investments to counter delayed deliveries and ensure most consumed Starbucks products make it to the customers.
Aside from the morning jam which the company has observed makes there most sales, Narasimhan is also looking to extract opportunities from overnight customers. A pilot plan has been designed in collaboration with retail delivery company, Gopuff, to disperse orders for all-night pullers, from 5 p.m. to 5 a.m. Also enhancing weekend layouts where families in huge numbers turn out in a particular demographic to gets their hand on their favorite evening drink.
“We are working to realize this demand potential to new product offerings, marketing and policy reformations all to improve our future results and overall store experience”, Narasimhan said.
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