Starbucks CEO: Price Hikes Are a Last Resort
Starbucks CEO Brian Niccol, who took the helm in September 2024, told investors on July 29 that raising prices will remain a last resort for the company, even as it continues to weather six consecutive quarters of declining sales.
Speaking on a third-quarter earnings call, Niccol discussed early progress under his “Back to Starbucks” strategy. The initiative focuses on revitalizing the customer experience with updates like reintroducing condiment bars, handwriting on cups, a streamlined menu, and refreshed store ambiance.
“We slowed new builds and major renovations to prioritize a new coffee house uplift program,” Niccol said. The company is investing around $150,000 per store to enhance interiors, promising “greater texture, warmth, and layered design.” These upgrades are already underway in New York City and will roll out to Southern California in late Q4, to reach 1,000 stores by the end of 2026.
Starbucks is also testing its “coffeehouse of the future.” A 32-seat, drive-thru-only prototype with a 30% lower construction cost is scheduled to debut in fiscal 2026. A compact-format store with approximately 10 seats is currently being built in New York City and is expected to open in the next few months.
Despite persistent revenue pressure, Niccol reiterated his hesitancy toward raising prices. “Pricing is always the last lever I like to pull,” he stated. “When we pull that lever, I probably want to do as little as possible.”
On July 21, unrelated to Starbucks but highlighting innovation in the food and beverage space, Elon Musk unveiled a “retro-futuristic diner” in Hollywood. The Tesla-themed venue features solar-powered EV chargers, LED movie screens, and an Optimus robot serving popcorn. Musk suggested the concept could expand globally.
In its fiscal third quarter ending June 29, Starbucks reported a 4% revenue increase to $9.5 billion, exceeding analyst expectations of $9.31 billion. Nevertheless, global same-store sales declined by 2%, primarily driven by a 2% decrease in transaction volume. A modest 1% increase in average ticket helped soften the decline.
The North American market, Starbucks’ largest, saw a consistent 2% drop in same-store sales. In China, sales grew 2%, boosted by a 6% increase in transactions, though average ticket size declined 4%. Local competitors such as Luckin Coffee and Cotti Coffee remain strong rivals.
Starbucks posted an adjusted profit of 50 cents per share—a 46% drop year-over-year and below analyst expectations of 65 cents. Operating margins fell by 650 basis points to 10.1%, impacted by increased labor investments tied to Niccol’s turnaround agenda.
Following the earnings call, Starbucks stock climbed more than 4.6% in after-hours trading.
