A former Starbucks Pickup location remodeled to include seating. | Photo by Jonathan Maze.
The Starbucks on the corner of 23rd and Park in New York City hardly seems like the type of location to display the company’s focus on in-store service.
It’s tiny. Tucked between a ping-pong bar and a Bath and Body Works, the location not long ago was available only for takeout and delivery orders.
And yet, on a chilly morning in late January, customers occupied most of the green seats along the wall of the coffee shop, with small, round tables in front of them. The seats were installed as part of a recent remodel, one of 200 the company has done so far, on its way to 1,000 by the end of this fiscal year in the fall.
That many of these seats were occupied hardly surprises company executives. “Every time we put chairs in cafes,” Mike Grams, Starbucks chief operating officer, said at the company’s recent Investor Day presentation, “they fill up.”
This shop is symbolic of the company’s shift under CEO Brian Niccol, who was lured away from Chipotle to lead Starbucks in 2024.
The location had been a Pickup unit, a shop with no seats designed for the on-the-go consumer that had been much of the chain’s focus in recent years. The company is now walking much of that back, closing the units or adding seats to make them more inviting for the sit-down customer again.
This strategy, focusing on its in-store customers, may seem a bit off, given that the bulk of Starbucks customers still take their beverages with them. Yet executives argue that it is the right strategy. In-store service is in the brand’s DNA, and everything flows from there.
So far, they appear to be correct. Same-store sales last quarter, the company’s fiscal first, rose 4%, its best performance in two years. Traffic to the chain’s shops increased 3%.
While executives did not necessarily take a victory lap at the investor day, per se—“There’s still more work to do,” Niccol said—the company is now shifting its turnaround strategy into a higher gear.
“We are shifting to playing offense and innovating,” Niccol said. “We’re not finished with our ‘Back to Starbucks’ plan or our broader transformation. But I am confident in our strategy, our progress, the pace of change and the opportunity ahead of us.”
The company detailed its plans, including upgrades to the menu, marketing, equipment and the look of its coffeeshops, as well as simple things such as ensuring products are in the shops. In the process, the company is upending much of the chain’s direction for the past decade.
Cold beverages represent two-thirds of the beverages sold at Starbucks. | Photo courtesy of Starbucks.
Starbucks held its Investor Day presentation at The Glasshouse, an event center overlooking the Hudson River in New York City. There, they had stations to test the chain’s new menu items, demonstrations of its new point-of-sale system and its fancy new espresso machines.
Maybe the most impressive was the full-size reproduction of one of the chain’s modern coffee shops, complete with lobby seating, counter, equipment and the back of the house. The chain’s new digital menu and order board, showing the status of customer orders, overlooked the lobby along the left wall.
It took just a day for workers to put the whole thing together, which is not unlike the speed with which Starbucks has been remodeling its coffee shops.
Almost all of them were done overnight, so employees leave the café in its old form one evening and show up to a brand-new space the next morning. “These uplifts cost roughly $150,000, are completed mostly overnight, and they keep our coffeehouses open,” Grams said at the presentation.
It’s a little thing, but Starbucks hardly needs any more pressure on its revenue line, even if it means overnight remodels. Starbucks’ sales turned south in November of 2023 and them remained in negative territory, stubbornly, for two years. Outside of the pandemic, the company had not had negative sales since 2009.
At one point, Starbucks’ transactions declined by 10%, meaning that it lost one out of every 10 customers in a single quarter.
This type of sales slump typically comes with a round of explanations for why, and there were plenty facing Starbucks: Competition from 7 Brew and Dutch Bros, the company’s response to its unionized stores, the price of its beverages.
Niccol, however, settled on the conflict between the company’s takeout business and its in-store service. The two service modes have routinely interfered with one another over the years as crowds of mobile order customers often discouraged those who wanted to stay.
To executives, shifting the company’s focus back to in-store service makes sense. Starbucks was created in the image of Italian cafes that longtime former CEO Howard Schultz liked to visit, where people would stay and linger. While it still needed to cater to the takeout customer, that in-store service is still what the brand is all about.
And that’s still where customers go. Executives say 60% of Starbucks customers come inside the store to get a drink.
“Customers use it in different ways,” Grams said. “I think that ecosystem is powerful when we show up with the full expression of Starbucks. I think if you look at the last five to seven years, we’ve tried to make it one way. The learning and all the data points (say) to us that people use it in different ways throughout the day, and we need to be available to them.”
Starbucks took some immediate steps after the arrival of Niccol in 2024 to change its service, like writing on cups and bringing back self-serve creamer stations. But it really needed to reconfigure its mobile app.
The company added an algorithm called “Smart Queue” that sequences orders from different channels so baristas aren’t overloaded with a bunch of orders at once. “We said we would bring order to mobile order and we’ve done that,” Grams said.
The company’s “Green Apron” service model, which enables store managers to invest in labor in the stores, has also helped speed service.
Starbucks’ goal is to ensure that orders are filled within four minutes or less. The company was able to do that inside its cafes and its drive-thrus during peak periods las quarter, in part because the stores had more employees working at the time.
“We’ve cleared a path for the connection with the customer to happen,” Grams said. “It’s focused on really getting after that big moment of the morning, of winning the peak and building our way to the afternoon.”
The company is taking other steps to continue improving that service speed. For instance, the digital menu boards show customers the status of their order, so they know when it will be ready.
Starbucks is also planning to upgrade its point-of-sale system. It features touchscreen kiosks that are color-coded and feature icons so the drinks ordered are easier to find. Employees can more easily order customizations to their beverages. The system cuts the amount of time it takes for a new employee, which the company calls a “partner,” to get proficient down to one to two weeks, rather than one to three months.
Because this is Starbucks, there is also a new type of espresso machine, called the Mastrena III. It currently takes a partner 70 seconds to prepare four shots of espresso. The new machine cuts that in half. Espresso is a big deal for Starbucks. Customers order 1 billion espresso shots from the chain every year, making it the company’s most popular beverage platform and modifier.
“It’s going to allow us to take double the capacity and do it in half the time,” Grams said. “That will be a really big unlock for the peak.”
The Mastrena III espresso machine. | Photo courtesy of Starbucks.
Starbucks is the world’s largest coffee shop chain and its second-largest restaurant, both by sales and by unit count. In the U.S., it generates $12 billion in revenue before 11 a.m., and $11 billion in revenue after that.
It has plans to increase both numbers. The company’s service and speed improvements should help that morning number. But executives believe menu development is key to building sales in the afternoon.
“We believe there’s room to create a true second peak,” Starbucks Chief Marketing Officer Tressie Lieberman said. “We see an opportunity to own a new Starbucks occasion in the afternoon, a true afternoon reset.”
That goes right at many of the chain’s growing competitors. Dutch Bros and 7 Brew both do big business in the afternoons. Several large-scale chains, including longtime Starbucks rival Dunkin’, are targeting that daypart with more and better product offerings and marketing strategies.
Starbucks’ efforts include tea and energy.
The company this week launched a new Matcha Menu, including an Iced Double Berry Matcha and an Iced Banana Bread Matcha. Tea sales have increased 70% at Starbucks since 2021, Lieberman said, and the product sells well in the afternoons.
It is also launching Premium Chai this spring that will give customers the ability to customize their sweetness levels and will include “fruit forward flavors, such as mango and raspberry.”
Energy drinks are another area the company wants to get into.
Starbucks Refreshers line of beverages has already been a hit, generating $2 billion in sales annually and one of the company’s fastest-growing products. The company plans to expand that line to feature Energy Refreshers.
Energy is a growing category in the restaurant industry, pioneered by chains like Dutch Bros. Yet Starbucks has barely dipped its toe into those waters. “We’ve been late to the game on some of these clear places that customers are saying they want to have a beverage,” Niccol said. “Energy is, without a doubt, a proven category that we have a right to win.”
There’s also food, which has, slowly but surely, become a sales driver for Starbucks. The chain generates nearly $6 billion in sales per year from food, or about 25% of the company’s sales.
The company plans more snacking items that could expand menu sales during the rest of the day, such as flatbreads and wraps, to get at the snacking consumer. It is also planning more “globally inspired” bakery and food items.
“Our food sales in the morning show us what’s possible when food and drink innovation work together to exceed customer expectations,” Lieberman said.
Food has become a big business for Starbucks. | Photo courtesy of Starbucks.
Of course, it helps to have the items on hand. “This is not earth-shattering news,” Niccol said. “When you’re in stock, you sell more items.”
That hasn’t always been the case.
“I remember when I first started with Starbucks, I was listening on a headset to a drive-thru experience,” Niccol recalled. “I heard a customer say, ‘Do you have X? Do you have this?’ And I’m like, well, that’s odd because it’s on the menu. Why are you asking if we have it. There should never be a perception for a customer that it’s kind of rolling the dice.”
That kind of reputation is difficult for chains because it can discourage customers when it happens too frequently. Starbucks’ plan to fix that is to get its stores to “daily replenishment,” where they receive products on a daily basis.
That can also help small stores that have less storage, Grams said. “Getting to replenishment daily allows us to address the on-demand piece,” he said. “Think of the big promotions. Getting the product back in the store faster … helps us with the smaller cafes that don’t have the space. So it’ll unlock more innovation for us.”
All that should, assuming it all works, pave the way for Starbucks to get back to the business of growing again.
The chain closed about 400 stores last year, mostly underperforming locations or those that couldn’t have seats. That put a pause on the company’s expansion strategy. But executives made it clear that they quickly plan to get back to its normal rate of store growth.
Starbucks expects to ramp up unit growth in the coming years, returning to its 400-units-per-year development pace by 2028. U.S. licensees, like hospitals, retailers and airport foodservice operators, are expected to add another 100 to 150 per year.
The company believes there’s room for another 5,000 stores in the U.S., and the company already knows of 1,000 sites where it has competitors but there isn’t a Starbucks within a mile.
Grams suggested the Upper Midwest, upper Northeast and South Central U.S. as expansion possibilities.
And when the company does that, Grams said, it will show up with every one of Starbucks’ ordering channels working together, including in-store, drive-thru, mobile order and delivery. “Our goal is showing up with the Starbucks expression with all four channels,” he said. “When we do that, it’s really hard for competitors to dent our market share.”
So long, apparently, as that in-store service is working.
