Mobile ordering and pick-up area for Uber Eats and Doordash delivery at a Starbucks coffee shop in Queens, New York.
Lindsay Nicholson | UCG | Universal Images Group | Getty Images
this is, Starbucks Cafes: Counters crowded with mobile orders, frustrated customers waiting for their drinks, and baristas overwhelmed trying to keep up with it all.
Resolving this issue will be top of the list of priorities for Brian Nicol, who takes over as CEO on Sept. 9, as he tries to turn around the struggling coffee giant.
Investors and management alike have pointed to operational issues as one of the reasons the chain’s sales have been sluggish in recent quarters. Other causes of the recent same-store sales decline include weak consumer sentiment, boycotts and a fading Starbucks brand.
Former CEO Howard Schultz, who remains involved in the company but no longer holds a formal role there, has also slammed the mobile app, saying on the “Acquired” podcast in June that it had become “Starbucks’ biggest weakness.”
Mobile ordering accounts for roughly a third of Starbucks’ total sales and tends to be more complicated: add-ons like cold foam and syrups are high-margin for Starbucks, but tend to take up more of barista time, frustrating both baristas and customers.
“I agree with Howard Schultz,” said Robert Byrne, senior director of consumer research at restaurant market-research firm Technomic. “It’s not in the data, it’s in the stores, and that’s where the problem lies.”
Keeping up with mobile growth
In late April, current CEO Lakshman Narasimhan said the company was struggling to meet morning demand and that long wait times were driving away some customers.
Schultz said he experienced the issue himself during an 8 a.m. visit to a Chicago store.
“Everybody came together and all of a sudden there was a mosh pit. That’s not Starbucks,” Schultz said in an episode of “Acquired.”
Making mobile ordering more efficient is one of the main ways Nicole can ease crowds at Starbucks.
As Schultz built Starbucks into the coffee giant it is today, he positioned the company as a “third place” between work and home, but the company has since lost that reputation as customers have come to rely more on the convenience of mobile ordering and less willing to linger in cafes.
“Because it’s a beverage, people often drink it in the car or on the go, so it needs to be very convenient,” Byrne said.
However, Starbucks did not make major adjustments to its operations in anticipation of changes in consumer behavior.
Schultz stepped down from his second CEO role in 2017, handing the reins to Kevin Johnson. Prior to becoming Starbucks’ COO, Johnson was CEO of technology company Juniper Networks. Under his leadership, Starbucks invested in technology and continued to grow digital sales, but restaurant operations were already struggling when he left.
Schultz will return as interim CEO when Johnson steps down in 2022.
“They did a poor job of anticipating the technological improvements needed to avoid what happened. The stock was at an all-time high, but they didn’t invest ahead of the curve and didn’t pay attention to the speed of mobile apps and how they were changing until it was too late,” Schultz said.
Shareholders have also experienced frustration with digital ordering and see this as a key area for Nicol to address.
“The issue in New York City, for example, is what the wait time is,” said Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments, which holds shares in both Starbucks and Chipotle, “and mobile ordering takes priority over in-store ordering.” [Niccol’s] We’re going to have to reverse that somehow to get people to spend more time and money in stores.”
Issues with mobile ordering have put increased pressure on baristas, with employees feeling burned out because of the apps leading to unionization in 2021.
In November, Starbucks Workers United, which currently represents workers at about 450 of the chain’s US stores, pressured the company to suspend mobile ordering for the duration of the promotion (Starbucks said at the time that it was already in the process of making the change possible).
Leveraging Chipotle’s strengths
Digital sales aren’t too much of a burden for Nicole’s current employer. chipotle pepper.
Online orders accounted for 35% of the company’s revenue in its most recent quarter, with the share of digital orders soaring from 18% in 2019 as the pandemic accelerated the shift to online ordering.
When Nicol joined Chipotle in 2018, most of the company’s locations had already installed a second prep line dedicated to digital orders, aimed at avoiding bottlenecks as online sales became more important to the business. That same year, the company also began installing drive-thru lanes dedicated to picking up online orders, which it called “Chipotlanes.”
During his 6.5 years at Chipotle, Nicol and executives drove digital sales through a variety of promotions, including athlete favorite orders, limited-time deals, loyalty programs and the highly anticipated launch of quesadillas, which became a digital-only option because serving them would have otherwise slowed operations.
Chipotle is also testing a partnership with robotics company Hyphen to automate burrito bowls ordered through its mobile app.
Mobile Makeover
Starbucks is working to speed up service and improve the experience for baristas.
In 2022, under Schultz’s leadership, Starbucks introduced a transformation plan that included eliminating bottlenecks through the installation of new equipment and other measures to speed up service.
Narasimhan has largely stuck to that strategy: In February, the company’s mobile app finally started showing customers the progress of their order, giving them a more accurate idea of when their drink will be ready, and in late July, Starbucks rolled out its “SirenCraft system” across North America, a set of processes that make drinks faster and baristas’ jobs easier.
But Starbucks’ problems may require more drastic measures.
For example, equipment rollout has been slow, with about 40% of its North American stores scheduled to have the new machines by the end of fiscal 2026. Accelerating that schedule could cut service times in half and ease the strain on baristas, as the company promised in its 2022 investor day.
“It’s never easy, it takes time, training and investment. [capital expenditure]” said TD Cowen analyst Andrew Charles.
“Our view is that Brian is very credible and would be tolerated if he could tell investors, ‘This is the answer to the problems we have,’ and explain why he believes that,” Charles said.
