high prices and boycott, among the problems facing the coffee chain

Andrew Buckley describes himself as the “mocha guy,” but he just gave up his Starbucks habit after the company’s latest price increase sent the cost of his drink above $6.

The 50-year-old, who works in technology sales in Idaho, was a loyal customer for decades and saw the mocha venti which he enjoyed almost daily as a small luxury that allowed him to stretch his legs during the work day.

But the company’s recent price hike was the limit.

“It was the last straw for my feelings about inflation in general. It was like: ‘that’s it, I can’t do it anymore’” says Buckley, who called the company’s customer service to complain before taking to social media to vent.

“I just lost it,” he said. “And it’s not like I plan on going back to it.”

The decision is a symptom of a larger problem that is brewing at Starbucks.

The company is facing new resistance from customers tired of inflation just as unionization struggles and protests against the company over political issues are leading to calls for a boycott and tarnishing the brand.

“Squeezing out their regular customers”

The company’s revenue fell 1.8% year-on-year globally in the first quarter of 2024.

In the US, by far the largest and most important market for the company, sales at stores open at least a year fell 3%the biggest drop in years, surpassed only by the pandemic and the Great Recession.

Internationally, sales fell 6%, dragged down by the 11% drop that was recorded in China.

Among those jumping ship were some of the most engaged customers: rewards program members, whose active numbers marked a rare 4% drop compared to the previous quarter.

Former regular customer David White says he has stopped almost all of his Starbucks shopping in recent months, sometimes leaving orders mid-purchase, horrified by the totals at the end of the check.

He says his outrage over price increases has been reinforced by other company decisions, including a crackdown on workers trying to unionize.

“They’re too full of themselves,” says the 65-year-old from Wisconsin. “They try to squeeze too much out of their regular customers and squeeze profits out of their employees and prices.”

For Andrew Buckley, the decision to leave the company was due to prices, but he notes that the various rumors surrounding Starbucks on political issues have left a bad taste in his mouth.

“This is a coffee shop. They serve coffee,” he says. “I don’t want to see them on the news.”

“It will take time”

In a conference call to discuss the company’s latest results, Starbucks CEO Laxman Narasimhan said sales were disappointingpartly because customers are more cautious with their spending.

He also acknowledged that “recent misinformation,” particularly about the Middle East, weighed on sales..

He defended the brand and promised to recover business with new menu items – such as bubble teas and a pesto egg sandwich – faster service in stores and a flurry of promotions.

Chief Financial Officer Rachel Ruggeri said this week that the company is seeing signs of revival and pointed to growth in active members of the rewards program.

The company has no intention of backing down on its expansion plans, but warned investors that the challenges will not go away quickly.

“We think it will take some time,” he said.

Symptom of something bigger?

The company’s problems have sparked debate about whether they are a sign that the carefree consumer spending that has fueled the world’s largest economy in recent years could be abruptly losing steam.

Like Starbucks, many other big fast food brands, including McDonald’s, Wendy’s and Burger King, have reported declining sales and have announced deep discounts to try to rekindle enthusiasm.

But many analysts believe Starbucks’ declining sales reveal more about the company than the broader economy..

“When you look back and see the magnitude of the change… that happened in such a short amount of time, that generally doesn’t point to something that’s macro in nature or price-related,” says Sharon Zackfia, chief consumer officer at the investment management firm William Blair, who expressed concern in a note to clients last month that the brand could be losing its shine.

Social topics

The company was already under pressure from a years-long fight with union activists, who have raised concerns about wages and working conditions, running head-on into the company’s progressive reputation.

But in late October – after Starbucks sued the union over a social media post expressing “solidarity” with the Palestinians – The company became embroiled in debates over Israel’s war in Gaza, sparking calls for a global boycott that took on a life of their own..

Starbucks, which is not the only American brand facing backlash over the issue and is not a target of the official Boycott, Divestment and Sanctions movement, blames misinformation about its views, after issuing a general statement condemning the violence in the region.

It has also taken a different tack with the union in recent months: The two sides now issue joint press releases announcing progress in contract negotiations.

But calls for a boycott increased on social media in January and continue to persist, according to a Bank of America analysis.

Last month, YouTube comedian Danny González apologized to his 6.5 million followers for the incidental presence of a Starbucks cup in a recent video after backlash.

Although Starbucks executives have remained relatively quiet on the issue during sales discussions, as Zackfia says, “You’d really be burying your head in the sand if you didn’t think it had an effect.”

Sara Senatore, an analyst at Bank of America, says she was initially skeptical that the boycott would have a major impact, but other causes seemed insufficient to explain such a sudden and severe drop in sales, noting that price increases of the company do not stand out from those of its competitors.

She says a quick turnaround could be a difficult task, comparing the impact to the brand crisis Chipotle faced after its stores were found responsible for causing e-coli outbreaks, which took years to eliminate.

“All you can do is try to muffle the sound or essentially override it with other things,” he says. “It may just be a matter of time.”

“It feels more like a chain”

On a recent sunny midday in New York, where the density of Starbucks coffees is among the highest in the world, it was difficult to assess the state of the business.

Some stores seemed empty, until customers rushing in to pick up a mobile order broke the calm.

Even loyal drinkers say they see room for improvement.

Maria Soare, a 24-year-old from Washington, DC, still buys drinks from the company three or four times a week, but her patronage has eased since the pandemic, when it served as a reason to leave the house.

She says the recent price increases “are annoying” and advises the company to “change the food.”

For friends Verónica and María Giorgia, the feeling towards the company has changed.

Veronica, 16, says she doesn’t go as much anymore due to a combination of factors: better options elsewhere, rising prices and recent protests by labor activists..

“That opened my eyes,” he says. “She feels more like a chain.”

And although María Giorgia remains a regular customer, the 17-year-old says her perception of the company has changed.

“When I was in high school, I saw it as cool. Now it’s just convenient.”

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