There are endless threads to pull with Starbucks’ turnaround, down to the very ink on customers’ cups as they order. But CEO Brian Niccol, in his first full breakdown since taking over as CEO in September from Chipotle, spent a good deal of time Tuesday on what he terms, “our brand moment of truth.”

Starbucks’ U.S. quick-service share recovered in Q1 following two quarters of declines. And it did so despite reducing the frequency of discount-driven offers—there were 40 percent fewer such transactions in the period, year-over-year. The brand also removed the extra change for non-dairy milk, customizations, and made pricing architecture more transparent. Through the quarter, Starbucks saw a shift in sales mix toward coffee and espresso-based beverages, which over-delivered and compensated for lower-than-expected performance across holiday promotions.

Same-store sales declined 4 percent (8 percent drop in traffic and 4 percent rise in ticket) in the North America and U.S., yet improved over the course of three months, and non-Starbucks Rewards traffic grew, quarter-over-quarter. Members and spend lifted versus Q4 and year-over-year, and price parity for non-dairy milk customizations brought back lapsed Rewards users.

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What this all suggested, Niccol said, was Starbucks, following some of its worst quarters outside of the pandemic or Great Recession, could sell more of its core beverages simply by demonstrating “premium value.” It could display resiliency not by reinventing itself, but by getting back.

And a key part of doing that—the fast and consistent delivery of high-quality, handcrafted beverages to guests. That barista-to-customer interaction being the “moment of truth” Niccol mentioned. From many angles, it was broken for some time.

In Q1, Starbucks continued to test and learn in hopes of getting to a four-minute throughput goal intended to address the gap “with a moment of connection,” Niccol said.

It’s become clear, he added, order sequencing was responsible more for bottlenecks at Starbucks than capacity. In other terms, the chain’s failure to deliver throughput wasn’t entirely a product of how busy restaurants were.

Niccol said investments in staffing and deployment processes and algorithm technology demonstrate the greatest current opportunity to speed up service. In turn, Starbucks began to segment locations by transaction volume and is now looking to implement “Siren” equipment only in the highest-quartile stores, “where it is needed to meet our throughput expectations,” Niccol said.

As a refresher, Siren is a 2022-unveiled project that features everything from cutting the need for workers to open refrigerators while making cold drinks to options like a custom ice dispenser, faster blenders, and a milk-dispensing system.

Starbucks in Q1 invested additional coverage hours across more than 3,000 U.S. company-operated stores through precision scheduling and introduced new brewed coffee and tea routines and simplified beverage builds. A staffing-level pilot across 700 stores will soon arrive as well.

“We’ll use learnings from this to inform the future investments we need to make in-store coverage hours to deliver both an exceptional partner and customer experience and further differentiate our brand,” Niccol said.

Starbucks also started to test an in-store prioritization algorithm and explored tech investments capable of improving order sequencing and behind-the-counter efficiency. It’s progressing efforts to build on the strength and popularity of its app, including development of a capacity-based time-slot model that enables customers to schedule mobile orders, and a mid-year update that will simplify customization options, improve upfront pricing, and provide real-time price changes as guests customize beverages.

Starbucks personal cup being used at the drive-thru.
Starbucks’ drive-thru is a more controlled experience than mobile ordering.

An expanded pilot of risers and shelves at the point of handoff will kick off shortly to help separate the café and mobile order experience.

Another upgrade: Niccol said Starbucks plans to fully deploy digital menuboards in cafes across U.S. company-owned stores over the next 18 months to make offerings more easily understood and to better display customization add-ons.

Speaking again to wider observations, though, one of the early moves Niccol made was to place stores into quartiles as it related to transactions. What the company discovered was more of the drag, as noted, owed to mobile ordering not having a sequencing system. The result being the counter area was congested and employees had to switch tasks to try to get drinks and food solved for a rush instead of consistently delivering “the moment of connection” (this was a theme of the call).

The good news, Niccol continued, is Starbucks has a high percentage of stores comping positive. In those, what he finds is experience and “craft” are executed without as many bottlenecks.

“And so, that’s what we’re focused on,” he said, “is how do we eliminate these bottleneck situations where the mobile ordering really overwhelms the production experience to the point where we can no longer provide a great service experience?”

There’s a gap in financial, employee, and customer satisfaction metrics in those juxtaposed units. Currently, Niccol explained, Starbucks doesn’t have a system to measure the timeframe of these things. That’s being put in place.

And he was in a store Tuesday morning where the updated algorithm started to roll out (it’s only in three stores so far) and the process was smoother.

“What I’m seeing in the kind of the early days of this small pilot is just that where two things are happening. One, the partners are set up to deliver these craft drinks with a great kind of human touch or connection at the speed that makes our customers feel really great about getting their drink or their total order,” Niccol said. “So, they’re kind of working in tandem because what the algorithm does is it takes the stress out of the system of having the partner have to figure out how to solve these mobile orders that just came in that weren’t sequenced. Now what it does is it sequences those mobile orders so that it can allow the cafe order to get fulfilled in a timely fashion and with a touch of humanity. And then, the same thing happens with the mobile order, because now we’re better sequenced up when people come in to give them their drink.”

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That test will expand while Starbucks tries other levers, such as how time slots compare to simply changing promise times.

Niccol called the umbrella effort “bringing order to mobile ordering.”

The fact mobile ordering has no sequencing was a red-flash hurdle from the start for Niccol. It was first in, first out. Consider how it compares to the drive-thru. There, Starbucks has a controlled access point. You have a queue that creates a governor; you’ve got an order board where employees give a greeting, and then customers get to the window where Starbucks “gives a great handoff.”

“That operates pretty well,” Niccol said. “We have really good metrics. We know how to get the window times we’re after.”

Even when an unexpected order bogs the process, Starbucks can recover.

Yet where it ran into problems was the fact there’s no gating on mobile orders. Orders flood in faster than customers can get there. So you have drinks sitting on the counter at the expense of providing other experiences for customers in-store.

In the test restaurant Niccol visited Tuesday morning, there was zero congestion at the counter. And (more on this shortly) there was a dual-feel setup with “for here” cups that Starbucks internally calls “mug hugs.” Essentially, where somebody cradles a ceramic mug with two hands and sits down and enjoys the experience.

That’s a far better overall appearance than when the counter is frantic, Niccol said. “It’s just a much more pleasant, peaceful coffee experience,” he said. “Then, meanwhile, when the mobile order customer comes in, the drinks are synced up in rhythm with people coming in to get their drinks and go.”

This, unpacked, was the vision Niccol went after. And it had to start with systems.

There were a few “Back to Starbucks” initiatives the brand could deploy in short order. One was the coffee condiment bar where customers who get simpler orders can handle their own customization. Alongside, Starbucks changed the operation of getting brewed coffee at the point-of-sale. If you want no-frills coffee, you order, get handed the drink, and either head out the door or to the bar (and importantly, off the line). That has become a fast transaction.

Starbucks, before it could improve ambiance and amplify its “third-place” roots, had to remedy that counter choke point. Once more, the culprit kept coming back, Niccol said, to mobile ordering and its first-in, first-out proposition. “We’ve got to fix it,” he said. “And that’s what we’ve got a full-court press on in solving the sequencing of that to deliver these moments of connection in what I would think is a responsible time period, call it four minutes or less.”

When Starbucks figures this out systemwide, with better tech behind it, Niccol added, “the brand will be right back where it needs to be, which is it’s a premium experience.”

Holistically, this is where Starbucks became “expensive” in customers’ minds in recent years. It wasn’t a sentiment tied solely to price; it was a breakdown of experience. As results proved in Q1, customers at Starbucks pay for “affordable luxury” when it feels worth it.

And to Niccol that means a “crafted experience.”

“It’s an experience that our partners provide with some level of humanity, but you actually don’t get anywhere else,” he said. “It just creates an environment where you like being there, whether you’re a partner or customer.”

Although learnings continue to filter in, Starbucks has noticed early on when its mobile order promise time gets beyond 15 minutes, customers often bail. It’s trying time slots or seeing if it can present promised times in such a fashion where it doesn’t get past, say 12–15 minutes. When that happens, customers are happy and capacity is freed up in-store so that four-minute experience can happen.

Over and over again, Niccol said, when these KPIs co-exist, everything starts to operate in harmony. Employees aren’t rushed or overwhelmed, and Starbucks provides the connectivity and craft that makes it “premium.” Customers feel valued and heard. “That’s what we want to ultimately deliver,” Niccol said. “That’s frankly why Starbucks is Starbucks because, in the end, you get this craft customized beverage in a reasonable amount of time in a way that actually has a touch of humanity that you frankly may not get in other points of your day.”

“And as we improve that experience, it’s really amazing to see just how the whole vibe of the coffeehouse just kind of calms down and you can settle in.”

The arrival of “for here” ceramic cups began corporate-wide on Monday, and glasses and plates added another level of “third place” that was sliding in recent years in favor of convenience.

“This is a spot where I can slow down, take a minute, whether I’m connecting with others or just taking a minute for myself, this is what occurs,” Niccol said. “And at the same token for the customer that needs to get in, get out, we’re setting them up for success, too, versus right now, the first-in, first-out mobile situation overwhelms the proposition at times. And when it happens, it’s not good. And so, we got to figure out how we don’t let those instances occur ongoing.”

Starbucks' Frappuccino on a table with a blurred background.
The message at Starbucks is back on its coffee.

A change in message, and other things

Starbucks’ U.S. same-store sales improved sequentially throughout Q1, which was consequential enough on its own given recent declines. But what was also vital was the improvement showed up most evidently, CFO Rachel Ruggeri said, in the morning as non-Rewards customers grew from a strategic shift to broader marketing.

In its efforts to “win the morning,” Starbucks invested additional coverage hours to support the service model of four-minute wait times and enable those “moments of connection.” That plus wage and benefit rate increases resulted in a 180-basis-point margin pressure in North America, excluding labor productively. One the company expected—and was willing—to absorb for long-term gains.

Also, Starbucks dialed up marketing, including linear TV, as part of its goal to reintroduce Starbucks to the world, Ruggeri said.

Removing the extra charge for non-dairy milk customizations hit the segment’s margin by 60 basis points. However, the decision resulted in strong customer interactions. Non-dairy customizations grew mid-single-digits, year-over-year, off a double-digit decline in the prior year.

Starbucks stepped away from some of the discounting under prior leadership and refocused the messaging on craft and experience. Niccol said non-Rewards customers, in particular, responded with more visits and transactions, as well as the morning daypart growth mentioned before. Starbucks switched dollars out of discounting into what Niccol called “working dollars for the brand and the brand experience.” A new ad last weekend highlighted the barista connection with customers through writing on cups. Consider it a brand and experience commitment, Niccol said.

“I think it’s a combination of shifting the approach as far as reaching both rewards and non-rewards customers with, I think a compelling message around the craft and the quality of our coffee and our experience,” he said. “And then also, I think our partners in the stores are really embracing getting back to Starbucks and enjoying making the espresso drinks and providing people that craft experience.”

Niccol added, in addition to broadening the base from Rewards to non-Rewards, Starbucks wants to ensure it’s talking to customers of all demographics, from Gen Z to the “over 50, 60 crowd.”

“It’s a much more balanced approach is how I would describe it as opposed to we’re just focused on young and cold drinks,” he said. “That’s not what we want to be about. We want to be about being a solution, frankly, for all those that want that third-place experience with a customized handcrafted drink.”

Among Starbucks’ other evolutions, it’s on the cusp of optimizing the menu. Niccol said to expect a roughly 30 percent reduction in both beverage and food SKUs by the end of fiscal 2025.

As that develops, he said, Starbucks will respond to customer trends and changing preferences with “breakthrough beverage and food innovation.” It will rely on employee inspiration like it did with its lavender lineup last year and follow cultural moments (something Niccol was well known for at Taco Bell) like the Dubai Chocolate Bar Matcha Latte that was based on the viral Dubai Chocolate Bar.

In-store, in addition to the condiment bars and mugs, Starbucks recently began providing handwritten notes on cups again and rolled out refreshed café service standards and expanded free refills on hot and ice brewed coffee and tea to non-Rewards members. Also, Monday was the start of a new code of conduct that opens the facilities only to customers.

The digital menu board change will give Starbucks flexibility with merchandising (afternoon versus morning offerings, for example) and the ability to adjust accordingly.

Niccol added Starbucks was “taking a hard look” at its store portfolio, too. It feels there’s potential, in the U.S. alone, to double store count while improving the health of the system. The company opened 377 net new stores in Q1, ending the period with 40,576 units: 53 percent company-operated and 47 percent licensed.

Cafes in the U.S. and China comprised 61 percent of the company’s global portfolio, with 17,049 and 7,685 stores in the markets, respectively.

Niccol said a renovation program is coming, as are new store builds and closures. “And we’re going to make sure our stores are warm and welcoming with work continuing on store design standards and cost to build,” he said. “Early customer and partner reactions to our plans show we’ve got the right strategy, both the reintroduction of coffee condiment bars and the expansion of free refills were identified as top drivers of purchase intent.”

Near-term, that’s going to include refreshed menu boards and improved café merchandise that better reflects a coffeehouse feel and showcases the simplified menu.

Niccol said Starbucks in Q1 more than doubled paid parental leave for eligible U.S. employees and made a new commitment to promote from within 90 percent of retail leadership roles over the next three years. As a result, through the period, shift completion, average hours per partner, employee retention, and hourly engagement improved.

Beverage, Fast Food, Finance, Story, Technology, Starbucks