Price changes are the last resort for Starbucks’ CEO, Brian Niccol, he said on Tuesday’s Q3 earnings call, but he won’t rule them out as part of his revitalization efforts of the coffee giant.
A quick-service restaurant veteran, Niccol has led successful revitalization campaigns at Taco Bell and Chipotle. His “Back to Starbucks” campaign is proceeding ahead of schedule, the CEO told investors on Tuesday.
“But with that said, you know, pricing will be a part of our business model,” he added. “There are times where it makes sense to take some price — and when those situations present itself, we’re going to do it in the least amount of pricing necessary. I prefer to always hold back on that one as much as possible. So will we have to use it in the future? Absolutely — it’s going to be the last lever I’d like to pull. And when we pull that lever, I probably want to do as little as possible.”
Since Niccol took over, Starbucks has already implemented changes to its pricing model. The company has removed surcharges for non-dairy milk substitutes and changed the pricing structure for syrups and powder add-ins.
It is unclear when any additional price changes may take place or what menu items may be affected. A spokesperson for Starbucks declined to comment when reached by Business Insider.
Niccol’s comments on changes to the menu prices came as Starbucks reported a decline in sales for the sixth consecutive quarter while the company continues its turnaround plan.
Global comparable store sales declined 2% overall, driven by a 2% decline in comparable transactions, according to Starbucks’ Q3 earnings report. The decline was partially offset by a 1% increase in the average ticket price. Most of the decrease was seen in North American markets, as international comparable store sales were mostly flat.
The company’s revenue — up 4% to $9.5 billion — beat analysts’ tepid expectations, Reuters reported. However, it missed on earnings, with an adjusted EPS of $0.50, a 46% decline over the prior year, missing estimates of 65 cents, the outlet reported.
Starbucks’ stock increased more than 3.5% in after-hours trading following the earnings call.
“While our financial results don’t yet reflect all the progress we’ve made, the signs are clear — we’re gaining momentum,” CEO Brian Niccol said in a statement included in the report. “Our ‘Back to Starbucks’ plan is working. It’s grounded in what makes us Starbucks: handcrafted beverages, welcoming coffeehouses, and the human connection that brings it all together.”
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Niccol’s preferred turnaround method starts with customer service, making the chain’s new Green Apron Service model the heart of the revitalization campaign. Niccol and CFO Kathy Smith said on the call that the foundational operating model, focused on crafting cravable coffees and enhancing consumer connection, is being rolled out early across stores nationwide after being tested in pilot stores.
Coffee houses already using Green Apron Service techniques have driven improvements in transactions, sales, and customer service times, outperforming the broader North American portfolio, Niccol said Tuesday.
Niccol’s “Back to Starbucks” campaign, which he launched upon taking over last September, aims to improve slumping sales and customer experience complaints that have plagued the international coffee giant.
Starbucks has since rolled out a series of changes in-store, including remodeling stores with comfy chairs and ceramic dishes to encourage visitors to stay longer, bringing back the self-serve condiment bar, and asking baristas to hand-write smiley faces and inspirational messages on to-go orders.
On the corporate side, the company has cracked down on its return-to-office mandate, requiring most support staff to work from the Seattle headquarters or Toronto office four days a week — or leave the company, Business Insider previously reported.
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