Starbucks' Troubles Are Other Coffee Companies' Opportunity

The coffee giant is scrambling to win back customers, but its competition is gaining steam

Welcome to the first May issue of the CulinaryWoman Newsletter! I’m happy to see our new subscribers as well as people who are following the newsletter. I hope you’ll commit to a subscription, and consider becoming a paid subscriber. That will bring you even more stories throughout the week.

If you’d rather make a one-time gesture, you can also buy me a coffee in any amount — which leads me to the topic of this week’s newsletter.

Starbucks Has A Terrible Quarter, And There Are Reasons Why

Before the pandemic, I was a loyal Starbucks customer — maybe even a fervent one. Since I wrote about them regularly for Forbes, I regularly zoomed over to my nearest Starbucks to try their seasonal drinks. I loved seeing my points pile up on the Starbucks app and trading them for upgrades and drinks.

I never became a fan of the Pumpkin Spice Latte, although I liked the chestnut syrup that the company offered around the holidays, and I even grew fond of the juniper syrup that it briefly had on the menu. Still, my regular order was an iced green tea lemonade, so much that my students would bring me one without asking what I liked.

The last time I bought one pre-pandemic, I paid around $3. But I broke my Starbucks habit during Covid, and I no longer have one near my house.

Since I haven’t been to Starbucks in months, I checked online to see what my old drink would cost now. It’s $4.25.

My disinterest - multiplied by that of many other customers - is one of the reasons why Starbucks is struggling.

During its second quarter, which ended March 30, according to Restaurant Business, same-store sales in the U.S. fell 2% in the quarter, its fifth straight quarterly decline and the sixth straight period when it fell below expectations.

Transactions, which reflect the number of people who order a drink, declined 4%.

CEO Brian Nichol, brought in last September, to give Starbucks a kick-start, said the numbers were “disappointing.” Analysts were grumbling that the company missed the consensus figure by a mile. They thought it would earn 50 cents a share; instead, Starbucks came in at 34 cents a share.

Starbucks divides its customer base into two categories: loyal customers, who take part in its rewards program and visit stores several times a month. They are about 60% of its business. The other 40% are non-loyal customers, who only drop in to its 17,000 U.S. locations occasionally.

The non-loyal defections are seen for the reason in its slump. Starbucks claims business from those customers has “stabilized.” It has laid out a series of measures aimed at boosting business from all consumers.

It has restored seats in cafes where it removed them, instilled a dress code, gone back to hand-writing customer names on cups, and offering plant-based milk.

In a video after Starbucks earnings were released, Niccol promised a “green wave of hospitality.” Said the CEO, “We’re not just building back our business, we’re building back a better business.”

Members of Starbucks Workers United disagree. Employees at more than 500 locations have unionized, although Starbucks has yet to negotiate a deal with them. They want consumers to boycott Starbucks until they have a deal.

Many other options

Meanwhile, those customers have a lot of other coffee choices.

Every town of any size across the country has an independent coffee roaster, allowing customers to shop and drink locally without patronizing Big Coffee brands.

Many of these coffee shops have become “third spaces” for their customers, acting as places to do work, meet up, and simply get a break from family life.

Major companies like Dunkin, which has 9,700 locations, and Dutch Bros, with 1,000, also have been upping their games. Dunkin constantly offers specials and introduces new items, pelting users of its app with deals.

Dutch Bros, which started out west, has been growing thanks to its laid back atmosphere — it calls its staffers “bro-istas” - and a variety of choices, especially when it comes to cold and frozen drinks.

Chatmeter, an analysis firm based in San Diego, analysed more than 300,000 coffee customer reviews using Artificial Intelligence. It found that Dutch Bros led its rivals in many categories, including customer service, in-store experience, value, drinks, lattes, iced coffee, cold brew and frozen beverages.

Cost is deterring customers

However, there’s news affecting the entire coffee world that may make competition even stiffer for coffee brands, large and small.

Chatmeter’s survey found that nearly half of consumers (45%) said they had to cut back on their coffee shop spending in the past year. And reviewers questioned the value they got for their money at all three chains, citing high prices, watery drinks and tepid customer service.

While Dutch Bros was seen as offering the best value by its customers, sentiment around value declined for all three brands. It was down 6.3% for Starbucks, 4.3% for Dunkin’ and 2.6% for Dutch Bros.

Moreover, the survey found that 38% would not pay more than $3 — the old price of my shaken green tea lemonade — for a basic cup of coffee. The median price all those users was willing to pay was $4. That’s much less than many lattes and cold brew coffees sell for.

When I get coffee out these days, I’m likely to swing through a branch of Bearclaw Coffee, which sits opposite our Trader Joe store. Bearclaw, which has three locations in Southeast Michigan, has a number of features that make it appealing: first, it offers drinks in mini sizes as well as small, medium, and large. The mini, about eight ounces, is enough for me.

It also has a punchcard that yields a free drink after a dozen visits, and it has some of the friendliest order takers this side of Dutch Bros.

However, I mainly have coffee at home, which is much cheaper than getting it out. I will make myself an espresso or an Americano using my Nespresso machine, or deploy my Bialetti to prepare a bigger cup, using beans from a local company like Roos Roast or Hyperion.

Changing coffee behavior

I’m not the only person who has switched to home-brew. Earlier this year, I interviewed Warde Manuel, the athletic director at the University of Michigan, for an article in the May issue of the Ann Arbor Observer.

I asked Warde if he had a favorite local coffee place, and his answer surprised and honestly delighted me.

Until 2020, he used to swing through Starbucks on a daily basis to pick up a cold brew, which fueled his long days and frequent travel.

During the pandemic, however, his local Starbucks closed. Left without a source of cold brew, Warde went online, watched instructional videos on Instagram, and ordered boxes of equipment on Amazon needed to make it himself.

With restrictions long over, he told me he still drops into Starbucks every week or so, but otherwise he taps his home supply.

Warde has a lot of company. Starbucks will have to strive to win its diminishing customers back.

More Than Ever, Chef Jose Andres Is Everywhere

Jose Andres holds a warm place in the hearts of many food lovers. Beginning with his Washington, D.C., restaurant Jaleo, he’s built a network of dining spots across the U.S.

He’s the face of World Central Kitchen, the food charity that arrives as soon as a disaster occurs to feed first responders and residents. His group has done tireless work in Ukraine and elsewhere.

This month, Chef Jose seems to be in even more places. He has teamed up with Martha Stewart on a competitive food show called Yes, Chef! On the program, the pair team up with chefs with management or personality issues, and try to give them some advice.

He also has a new book, called Change The Recipe: Because You Can’t Build A Better World Without Breaking Some Eggs. The book is a combination of a memoir and an essay collection. The book originated as a series of open letters to his three daughters, Carlota, Inés and Lucía.

Lastly,

José Andrés

is here on Substack, and you can subscribe to his regular newsletters, which sometimes include recipes.

Across The Pond, Basque Cuisine Is Getting Its Moment

Not far from where Chef Jose grew up, the Basque region of Spain has contributed a series of dishes to the culinary world. And now, in Britain, Basque cuisine is having a moment.

According to Time Out UK, British diners have fallen for everything from Basque cheesecake, with its burned and blistered top, to wood grilled fish, to the tapas-like appetizers called pintxos, which are often multi-layered and served on top of grilled bread.

Extending beyond London, the trend has made its way north to Manchester, where Basque cuisine is featured at a restaurant named Stow. Co-owner Jamie Pickles says open-fire cooking is relatively new to his area.

‘We love to cook things that shouldn’t typically be cooked using wood-fired ovens or BBQs,” he told Time Out. That means dishes like soft milk bread and a smoked cream tart, which gets a bitter-edge caramelization. ‘It takes real attention to detail and care to get these things right. Balance is key to us.”

Subway’s Restaurant Count Keeps Dropping

Many people don’t realize that Subway, not McDonald’s or Starbucks, has been the largest food chain in the United States for many years. However, Subway has been cutting back.

Last year, without much notice, it closed more than 600 restaurants in the U.S., according to Restaurant Business. That leaves it with 19,502, the first time in 20 years it has fallen under 20,000 restaurants.

In the past 10 years, Subway has closed 7,600 restaurants, or 28%. It once had more than 27,000. The number closed is equal to all the Taco Bells in the United States.

The company generated $9.5 billion in system sales in the U.S. last year, down 3.8% compared with 2023.

I’ve always considered Subway to be the lowest on list of take away sandwiches.. I’m a regular customer at Jimmy John, I like Potbelly and I will occasionally take home the turkey sandwich from Trader Joe.

In fact, the last time I ate in a Subway was in Breezewood, Pa., when I got stuck in a blizzard and had to get off the turnpike. Maybe I’m part of their problem.

Keeping Up With CulinaryWoman

Not food related, but a couple of automotive relative items to note.

• On Friday, the Boston Globe published my essay on Tesla and why Elon Musk needs to step aside.

• Last week, paid subscribers to my other Substack, Intersection: Everything That Moves received my special resport on the future of the auto industry.

You can sign up to receive that as well as my digital sequel to my book, The End of Detroit: How The Big Three Lost Their Grip On The American Car Market.

Tomorrow, I’ll be back for paid subscribers to CulinaryWoman with my look at the latest classic food item to go far beyond its origins. Should we be doing so many variations of things that are delicious in their original form?

Have a good week and see you next Sunday.