New Starbucks CEO Signals Cutback On Coffee Deals & Promotions

Starbucks CEO Brian Niccol is ready to move forward with an ambitious turnaround plan for the coffee chain. WSJ reported that the chief executive has “quietly reduced the frenzy of discounts” on menu items. This means the era of special discounts and rewards at the world’s biggest coffee chain is ending—say goodbye to those half-off grande Caramel Frappuccinos. 

Like many other fast-food chains (such as MCD), Starbucks boosted menu prices in recent years because of rampant inflation. In recent quarters, the coffee chain and many other quick-serve restaurants have had to introduce meal deals and drink specials in a bid to retain customer market share as low/mid-tier consumers pulled back on spending. 

Here’s more about Niccol’s move to scale back discounts: 

Starbucks is pivoting away from discounts as Niccol emphasizes the company’s hallmarks of selling handcrafted, premium coffee. Starbucks for years eschewed discounting and promotions, but recently stepped up offers through its app as its cafe traffic sagged and customers complained of high prices and long wait times.

…

Starbucks isn’t planning to run broad offers during the holiday season, and instead aims to promote seasonal drinks through advertising, the company said during an early-October strategy update for store leaders. -WSJ 

Niccol took over as CEO about a month ago, following his successful tenure as CEO of Chipotle Mexican Grill, where he led a major turnaround.

Meanwhile, activist shareholders circled the stock. In August, the company’s board terminated Laxman Narasimhan, the previous CEO. It appears Niccol was brought on board to push a turnaround of the coffee chain that has suffered in top markets, including the US and China this year. 

In September, during an internal company forum viewed by WSJ reporters, the CEO said, “The strategy is, simply put, just making a couple of powerful choices, and then we’ve got to execute like crazy.” 

For years, Starbucks has had very little discounting and rewards as it boasted itself as a premium brand. Howard Schultz, the former CEO, previously warned about excessive promotions.

Starbucks’ traffic has slowed since last year. The previous CEO, Narasimhan, called the current consumer environment “complex” and “challenging.” 

Cyclical macro issues are the root cause of a consumer slowdown. The company’s response has been to boost discounts and rewards to boost sales, yet customer traffic has yet to fully return. Perhaps the excessive discounts were diluting the premium brand. It remains to be seen if the new CEO can create a successful turnaround in this challenging environment.