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Business Insider
17-05-2025
- Business
- Business Insider
Starbucks doubles down on baristas, not AI, to fix its customer crunch
AI is taking drive-thru orders at Wendy's, and Chipotle uses machines to prep avocados for its guacamole. Starbucks, however, is turning to a different solution: People. The coffee chain said in its latest earnings report that it plans to staff up its stores over the next several months. The reason: The efficiency-oriented machines that it's spent the last few years using just weren't good enough at speeding up drink production as good ol' humans. Some of the additional staffing will involve hiring more baristas, a company spokesperson said. In other cases, Starbucks will give additional shifts to existing baristas or pull in workers from one store to fill in at another to fill in. "They're realizing that there's more to it, and solving some of the throughput and other experience issues they need to fix is going to require more labor," said R.J. Hottovy, the head of analytical research at As it staffs up stores, Starbucks is also rolling out a new algorithm that will determine the order in which baristas make drinks. That will help baristas make drinks more efficiently with those extra shifts, the company has said. By the end of September, the new labor model and the algorithm will be in about 3,000 US stores, Niccol said on last month's earnings call. Starbucks provides a counter-example to a broader restaurant industry trend. While many other chains are automating processes, especially with AI, the Seattle-based company is acknowledging that there might be limits to what machines can do. At Starbucks, machines haven't been as effective as people Over the last few years, Starbucks rolled out the Siren System, which made a series of equipment and process improvements meant to speed up the production of cold beverages like frappuccinos. At the end of April, though, CEO Brian Niccol said that Starbucks would halt the system's use as it invested more in adding shifts for its baristas. "We're finding through our work that investments in labor rather than equipment are more effective" at making orders quickly, Niccol said during the company's earnings call. The additional workers also mean that store employees are "able to greet customers, hand off orders personally, be available for customer questions and requests, and more," Starbucks said. "Customers appreciate these memorable, more personal moments in our community coffeehouses." Earlier this year, Starbucks tried out the additional baristas at 700 stores, Niccol said on the company's earnings call. Those stores saw a growth in transactions, he added. Still, spending more on people has its risks. Starbucks will have to make the additional shifts work across in-store, pick-up, and drive-thru orders, said Sujay Saha, founder and president of Cortico-X, a consulting firm focused on customer experience. Some baristas have told BI that their stores have been overwhelmed by the number of orders that they have to fill, especially those that customers place through the Starbucks mobile app. Niccol has said that he wants Starbucks to provide both quick coffee and food to go as well as more personal service for customers who want to hang out in-store. "That is an experience that some customers need," Saha said of Niccol's focus on connections between patrons and baristas. "But some customers just need to get the coffee and head out." More baristas could improve Starbucks' customer experience Some baristas told Business Insider that they are skeptical that the extra workers will make a difference. The baristas declined to be identified by name, citing potential retaliation from Starbucks, but BI has verified their identity and work for Starbucks. One Starbucks worker at a store in New Mexico said that she and her colleagues are overwhelmed and need the extra shifts — something that's apparent to store visitors and could deter job applicants. "People know they're going to be overwhelmed, overworked, and under-compensated," the employee said. Another barista, based in a store in Ohio, said that the additional staffing are welcome news since their manager usually steps in to help when they are understaffed during a busy period. "The only day my store manager was not on the floor working with us were Monday's," the employee said. Another employee, who works at a store in North Carolina, said that the location is struggling to keep employees between understaffing and recent changes to Starbucks' dress code. "I'll believe it when I see it," the employee said when asked about Niccol's announcement of additional shifts. Employing people still costs money. Starbucks' shares dipped roughly 7% as the company announced the additional investment in labor. Executives said that they plan to offset the costs by applying zero-based budgeting to Starbucks' expenditures. The measure determines spending by asking managers to justify each expense rather than using last year's budget as a baseline. Paying for more person-power isn't cheap, but it does fit in with Niccol's goal of making Starbucks a place that customers want to keep coming back to, Hottovy said. Visits to Starbucks stores fell 0.9% in the first quarter, according to foot traffic data from Additional staffing — and better customer service — could get patrons to stop by more frequently, Hottovy said. "At the end of the day, it's really your employees that make the experience," he added.
Yahoo
01-05-2025
- Business
- Yahoo
Starbucks' employee, algorithm investments show signs of paying off
This story was originally published on CX Dive. To receive daily news and insights, subscribe to our free daily CX Dive newsletter. Starbucks is putting the rollout of the Siren System on hold as it focuses on improving the employee experience and order sequencing to drive a better customer experience, executives said on a Q2 2025 earnings call Tuesday. The Siren System is a collection of drinkmaking equipment designed to speed up order fulfillment. Updates to the coffee chain's Shift Marketplace tool, which lets staff pick up and trade shifts, boosted the pool of workers available for last-minute shift changes by 10 times, according to CEO Brian Niccol. Starbucks is now seeing record high shift completion, record low turnover at under 50% and rising employee engagement. 'What we're discovering is the equipment doesn't solve the customer experience that we need to provide, but rather staffing the stores and deploying with this technology behind it does,' Niccol said during the call. Starbucks's turnaround effort is on track, according to Niccol. However, the company still has work to do, and employees will be key to delivering the customer experience necessary to return to growth. Global comparable store sales declined 1% year over year in the second quarter of 2025, according to a company earnings report. While the performance is still negative, it shows improvement from the 4% year-over-year comparable sales decline reported in first quarter 2025. 'We're not just building back our business, we're building back a better business,' Niccol said. 'I know from experience that when you focus relentlessly on the customer, you take care of your people, improve your operations and carefully manage costs, the financial results will follow.' The changes to Shift Marketplace are part of the puzzle. Starbucks filled 500,000 more shifts in the second quarter of 2025 than the same period a year ago, and the length of tenure for cafe workers is on the rise, according to Niccol. 'This translates into more moments of connection with our customers, higher transaction capture and a better experience for our partners,' Niccol said. Starbucks also tested a new staffing and deployment pilot, which resulted in improved speed of service and customer connections, according to Niccol. The company plans to invest in labor to better support workers, particularly during the busiest hours of the day. The company's pilot of an order sequencing algorithm designed to reduce in-store and drive-thru service times — a perennial frustration — without affecting the mobile order experience proved successful. The average cafe wait fell by an average of two minutes, and 75% of wait times were under four minutes at peak times. Starbucks is targeting an average wait time under four minutes. Starting in May, Starbucks will introduce a service model that combines the staffing and algorithm changes to 2,000 locations in the United States, according to Niccol. The changes will roll out to more than one-third of U.S. cafes by the end of fiscal 2025. The emphasis on staffing is a reversal from Starbucks' strategy from the past couple years, when the company was aiming to offset the loss of people with equipment, according to Niccol. Pausing the Siren System rollout is expected to help Starbucks improve throughput and connection while minimizing capital expenditures. However, the new staffing model is not without its own costs. Starbucks' consolidated operating margin fell 4.5% year over year to 8.2% due in part to the hiring of additional labor to support the CX turnaround, according to CFO Cathy Smith, who joined Starbucks last month. 'Although our labor investments drove margin compression in the quarter, the investment in labor allows us to capture additional demand and transactions, which will accelerate our return to growth,' Smith said. While Starbucks is spending more on labor, executives didn't discuss a topic the Starbucks Workers United union has been pressing the company on — wages. The median Starbucks worker earns less than the federal poverty line for an individual, while the union is pushing for a $20 minimum wage for baristas and a $25.40 minimum wage for shift supervisors, according to reporting from Restaurant Dive. Sign in to access your portfolio
CBS News
01-05-2025
- Business
- CBS News
Starbucks' latest strategic pivot involves less automation, more baristas
Starbucks is rethinking the role of "innovation" in running a coffee chain. After rolling out a new system of technical enhancements to streamline cold food and drink orders, the company made an abrupt U-turn this week and said it would halt use of its automated equipment and restore the human touch by bringing more baristas on board. The reboot comes at a delicate time for the restaurant giant, which is under pressure to boost sales and revive a brand that has lost its luster with some customers. Although Starbucks remains profitable, its sales slowed last year. In the company's most recent quarter its revenues rose 2% to $8.7 billion, falling just short of Wall Street analysts' forecasts of $8.8 billion. In a bid to win back customers, starting in May Starbucks will expand its "Green Apron service model" which will involve hiring new baristas at thousands of locations and fine-tuning an algorithm to manage orders, CEO Brian Niccol said on a call with Wall Street analysts earlier this week. "What we've learned over the last couple of months, specifically behind both the algorithm pilot and the labor pilot, is the combination of staffing, deployment and technology gives us the outcomes of a great customer connection experience as well as the right speed and throughput associated with what we want to achieve, both in-cafe, mobile order and drive-thru," Niccol said. What is the Siren system? Named after the twin-tailed mermaid that serves as the face of the company's branding, the Siren system is a series of hot and cold food equipment that Starbucks started rolling out in 2022 to "make crafting beverages and food more straightforward" for workers, according to the coffee chain's website. The Siren System is installed in less than 10% of U.S. company operated stores, according to a Starbucks spokesperson. Building on that platform, Starbucks unveiled the Siren Craft System in July 2024. The technology is aimed at streamlining beverage and food preparation, shortening wait times, and helping baristas deal with the daily flood of orders, including the speciality concoctions the coffee chain has become known for, according to Starbucks. Less than a year later, however, Niccol said the company will halt its deployment of the Siren tech and instead invest more in labor. Focusing on expanding its workforce, the company said, has proven more effective than implementing new tech when it comes to driving growth. "It's not that we're not going to ever use the Siren system," Niccol said in the earnings call. "It's just not something that we need to be rolling out across all 10,000 stores." Starbucks will bring more baristas on board this year at thousands of locations and allow employees to pick up extra shifts, the Starbucks CEO said. The company's hope is that small personal touches — like handwritten notes from baristas on their cups and ceramic to-stay mugs — will keep customers coming in the door and entice them to stay longer. "What we're discovering is the equipment doesn't solve the customer experience that we need to provide, but rather staffing the stores and deploying with this technology behind it does," Niccol said. To be sure, Starbucks isn't turning its back on tech. While Siren is taking a backseat, the CEO also said the company is testing a new sequencing algorithm that has lowered drive-thru and in-store wait times to less than four minutes. Starbucks employs around 361,000 workers worldwide, according to the Associated Press. In February, the coffee chain announced it would lay off 1,100 corporate employees, about 7% of all its white-collar workforce. This did not include baristas who service the stores. How much do baristas earn? Starbucks baristas earn an average of $19 an hour, according to a spokesperson. The company also offers health care, retirement and other benefits, distinguishing it from many retailers. "When you factor in benefits, our comprehensive compensation package averages $30 per hour," the spokesperson said. Starbucks' automation push was part of a larger effort to draw more customers to its stores, known as the "Back to Starbucks" strategy. After enjoying years of rapid growth, the company's progress has stalled, with U.S. same-store sales slipping 2% last year. Looking for a refresh, the company in 2024 brought Niccol — a highly regarded restaurant industry veteran who as CEO of Chipotle had helped the fast-casual chain more than double its business — in as chief executive. In coming aboard in September, Niccol promised to elevate the in-store experience, reduce wait times and boost sales. "It is clear we need to fundamentally change our strategy to win back customers and return to growth," Niccol said during a call with analysts last year. contributed to this report.
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Business Standard
30-04-2025
- Business
- Business Standard
Starbucks earnings disappoint as CEO Niccol's strategy hits US roadblocks
Starbucks faces challenges in reviving its business, CEO Brian Niccol said on Tuesday, after the coffee giant posted disappointing global comparable sales and profit with inflation and economic uncertainty driving up costs and dampening US demand. Investors have placed their bets on Niccol's turnaround strategy for the brand, whose sales have fallen for four straight quarters, by reducing production and service times and investing in stores to improve customer experience. Starbucks paused rolling out its Siren System store revamp program, launched under former CEO Laxman Narasimhan, because it was capital heavy, said Niccol, who had helped revive Chipotle Mexican Grill as CEO of the burrito chain. The company will focus on investing in improving front-end delivery instead of kitchen equipment, Niccol said on a post-earnings call. "The equipment doesn't solve the customer experience that we need to provide." Niccol said Starbucks was improving service speed with the right staffing and deployment, and that its refreshed marketing was resonating with customers. Starbucks will also review its US store portfolio as it rolls out labor-focused technological changes including a pilot program that allows customers to schedule their mobile orders, he said. However, consumers are growing more cautious as US President Donald Trump's erratic trade tariffs have created economic uncertainty and threaten to fuel inflation. US restaurant visits and spending weakened in February and March. Starbucks' shares fell 6.5 per cent in extended trading. The stock, which had surged in the months following Niccol's appointment as CEO, is down about 7 per cent so far this year. North American same-store sales fell 1 per cent for the fiscal second quarter ended March 30, worse than the 0.24 per cent drop estimated by analysts in an LSEG poll. The company said sales in Canada returned to growth in the quarter. It may take time for traffic to reaccelerate because changes in stores and reinstating its coffee house roots could take at least another three to six months, said Bernstein analyst Danilo Gargiulo. Starbucks is paring down promotions and discounts, and relying less on its loyalty program as it invests in broader marketing. The average ticket, or amount spent by customers per visit, was up 3 per cent in the second quarter. The company said it will localize and move production as needed to mitigate the impact of US tariffs on imports from China. The company's international business improved slightly, with sales unchanged in China, its second-largest market, after four straight quarters of decline. Starbucks said it was committed to growing business in China long-term. International comparable sales rose 2 per cent, compared with estimates of a 1.13 per cent drop. Gross margin fell 590 basis points in the quarter and the company reported adjusted earnings per share of 41 cents, missing estimates of 49 cents. Total same-store sales declined 1 per cent in the second quarter, compared with analysts' average estimate of a 0.26 per cent fall. Comparable sales had declined 4 per cent in the preceding three-month period. (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
Arab News
30-04-2025
- Business
- Arab News
Starbucks earnings disappoint as CEO Niccol's strategy faces US hurdles
Starbucks faces challenges in reviving its business, CEO Brian Niccol said on Tuesday, after the coffee giant posted disappointing global comparable sales and profit with inflation and economic uncertainty driving up costs and dampening US demand. Investors have placed their bets on Niccol's turnaround strategy for the brand, whose sales have fallen for four straight quarters, by reducing production and service times and investing in stores to improve customer experience. 'Our financial results don't yet reflect our progress, but we have real momentum with our 'Back to Starbucks' plan,' Niccol said in a statement. Starbucks paused rolling out its Siren System store revamp program, launched under former CEO Laxman Narasimhan, because it was capital heavy, said Niccol, who had helped revive Chipotle Mexican Grill as CEO of the burrito chain. The company will focus on investing in improving front-end delivery instead of kitchen equipment, Niccol said on a post-earnings call. 'The equipment doesn't solve the customer experience that we need to provide.' Niccol said Starbucks was improving service speed with the right staffing and deployment, and that its refreshed marketing was resonating with customers. Starbucks will also review its US store portfolio as it rolls out labor-focused technological changes including a pilot program that allows customers to schedule their mobile orders, he said. However, consumers are growing more cautious as US President Donald Trump's erratic trade tariffs have created economic uncertainty and threaten to fuel inflation. US restaurant visits and spending weakened in February and March. Starbucks' shares fell 6.5 percent in extended trading. The stock, which had surged in the months following Niccol's appointment as CEO, is down about 7 percent so far this year. North American same-store sales fell 1 percent for the fiscal second quarter ended March 30, worse than the 0.24 percent drop estimated by analysts in an LSEG poll. The company said sales in Canada returned to growth in the quarter. TURNAROUND TIMELINE It may take time for traffic to reaccelerate because changes in stores and reinstating its coffee house roots could take at least another three to six months, said Bernstein analyst Danilo Gargiulo. Starbucks is paring down promotions and discounts, and relying less on its loyalty program as it invests in broader marketing. The average ticket, or amount spent by customers per visit, was up 3 percent in the second quarter. The company said it will localize and move production as needed to mitigate the impact of US tariffs on imports from China. The company's international business improved slightly, with sales unchanged in China, its second-largest market, after four straight quarters of decline. Starbucks said it was committed to growing business in China long-term. International comparable sales rose 2 percent, compared with estimates of a 1.13 percent drop. Gross margin fell 590 basis points in the quarter and the company reported adjusted earnings per share of 41 cents, missing estimates of 49 cents. Total same-store sales declined 1 percent in the second quarter, compared with analysts' average estimate of a 0.26 percent fall. Comparable sales had declined 4 percent in the preceding three-month period.
