The easy parts of Starbucks’ coffeehouse revival are done: Coffee condiment bars and ceramic mugs are back, customers can get free refills for beverages like drip coffee and some teas, and the brand has pulled back on discounting. But CEO Brian Niccol’s first full quarter with the company still saw traffic decline in North America.
Many of the key changes Niccol wants to implement are in testing or are rolling out slowly, as the company looks to overhaul significant parts of its in-store operations. In the longer term, these changes could help the chain reverse its sales troubles and pick up development again.
“In the U.S. alone, we still see the potential to double our store count while improving the overall health of our portfolio, Niccol said on the company’s Q1 2025 earnings call
Niccol’s remarks hint at an ambitious plan: Doubling company-owned stores would require building about 10,000 more Starbucks in the U.S. To get there, the brand has a host of operational challenges to solve to get its sales and in-store performance back on track.
Mobile order sequencing
One of Starbucks’ biggest challenges has been its mobile-order-and-pay system. The wildly successful channel accounted for one-third of orders by early 2024, but more than 10% of those orders were never completed.
Niccol said the chain has identified order sequencing as a key way to reduce order bottlenecks.
“The biggest challenge is the fact that the mobile ordering has no sequencing. It's just first-in, first-out,” Niccol told investors. “They come flooding in faster than even our customer can get there. So, all these drinks are sitting on the counter and it's at the expense of providing any other experience.”
To combat that, the chain is testing a sequencing algorithm that tells baristas which orders to prioritize in preparation.
The algorithm is intended to ensure “the drinks are synced up in rhythm with people coming in to get their drinks and go,” Niccol said.
The test is only live in three stores, but the first weeks of the pilot have improved store performance, customer satisfaction and worker sentiment, Niccol said. This, combined with process changes and labor deployment, is enough to improve throughput without requiring new equipment for most stores — only the top quartile of stores sees enough throughput to really need additional equipment, he said.
“I swung by one of our stores with this pilot and there was no congestion at the counter,” Niccol said.
BTIG Analyst Peter Saleh said the sequencing algorithm could have a more immediate impact on performance than the slow-going deployment of Siren System equipment.
“A change in the ordering process is much easier to implement than the Siren system upgrades,” Saleh wrote, adding that the algorithm is based on factors like customer arrival time.
Physical changes to stores
Starbucks will add digital menu boards across its system over the next 18 months, Niccol said.
Saleh said this move would make it easier for the brand to add LTOs and separate its menu by daypart.
“We are actually surprised that Starbucks doesn't already have these at its U.S. restaurants like most competitors,” Saleh said.
The menu boards accompany a rationalization of the menu, which William Blair analyst Sharon Zackfia said will wipe out about 30% of menu items, though “the bulk of sales [are] expected to transfer to other items.”
Starbucks is testing other changes to its store infrastructure, Niccol said, including efforts to diversify seating. Such changes are in keeping with the return of ceramic mugs, handwritten notes on cups and the coffee condiment bar, all of which were implemented by late January as the first step in Starbucks’ shift back towards a coffeehouse-vibe.
In keeping with its focus on mobile-order-and-pay, Starbucks is planning a test of “risers and shelves at the point of hand-off to help separate the cafe and mobile order experience,” Niccol said.
Changes to labor hours and structure
Starbucks is altering its labor practices at both the cafe and corporate level in support of its brand turnaround. Niccol said the company has increased staffing levels at 3,000 stores. The brand will start a staffing pilot at 700 stores which will inform “future investments we need to make in store coverage hours to deliver both an exceptional partner and customer experience and further differentiate our brand.”
CFO Rachel Ruggeri said the changes will drive short-term increases in labor cost related to additional deployment.
“There is a near-term unfavorable impact as we make these types of investments, they will be accretive to the business longer-term as these investments will drive traffic,” Ruggeri said.
The company has simplified beverage builds and switched up where brewed coffees are handed off. Brewed coffees are now handed off at the point of sale, Niccol said, and customers handle their own customizations, reducing staff workloads and speeding up transaction times on orders including brewed coffee and tea.
Away from the store level, Starbucks is simplifying its support structure — which will entail job cuts. Neither Ruggeri nor Niccol shared specific estimates for the scale of the impending layoffs, but Ruggeri said they would be visible on the company’s balance sheet.
“We expect G&A as a percentage of revenue to spike as we transform the support organization, incurring near-term restructuring charges, inclusive of severance pay and related benefits,” Ruggeri said.
Store development
These operational shifts could revive Starbucks’ same-store sales growth, especially as it laps dismal quarters from last year. But doubling its footprint is a far more ambitious goal for a legacy brand. Still, it makes sense given international challenges, said Brian Yarbrough, an Edward Jones consumer research analyst.
“If you can still double your store count in the U.S., you don't need China to drive your valuation to be a growth stock for a very long time,” Yarbrough said. Starbucks’ Chinese sales have been troubled in recent quarters, with both ticket and traffic declining in the face of sharp competition.
Niccol specifically cited Texas and the Southeast as regions where Starbucks has significant whitespace. Openings in these areas typically have “great economics,” he said.
Starbucks is planning “a strong store renovation program, new store builds and store closures,” to improve the overall performance of its system, Niccol said.
But when it comes to growing its unit count, Niccol said the brand is looking at smaller store formats — as many restaurant brands are — to expand the range of real estate available to Starbucks.
“One of the things I'm really excited about is our ability to execute a smaller format that still has great seating and delivers the partner experience,” Niccol said. “When you combine our ability to do the drive-thru, the cafe, the mobile ordering in small, medium, large [footprints], it just starts to open up trade areas that you get really excited about.”
