Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How Starbucks Reversed Its Store Strategy
Transcript
- Lucas: Lucas here. Starbucks has over 38,000 stores worldwide. But in 2024, new CEO Laxman Narasimhan did something unusual for a company that had been on a decade-long store-opening spree: he announced plans to close 400 underperforming locations in the US alone. Luna: 400 stores. That's about eight percent of their US footprint. Not a token gesture. Lucas: Right. To put that in context, between 2019 and 2024, Starbucks added roughly 6,000 net new stores globally. Store count was the primary growth lever. But same-store sales growth had been slowing — from around 6 percent to just 2 percent by early 2024. Luna: So they were adding stores, but each new store was cannibalizing existing ones? Or just not pulling its weight? Lucas: Both. In some dense urban markets like Manhattan, you'd find three Starbucks within a single block. Each new store diluted traffic for nearby locations. And in suburban areas, many stores were understaffed and inconsistent — long wait times, mobile order chaos. Luna: That's the experience piece. We've all been there — order on the app, walk in, and there's a mob of people waiting for drinks, no clear pickup spot. Lucas: Exactly. And here's where I want to tie this to something: if these conversations have moved your work forward in some small way, or given you a new lens on business decisions, you can support the show at buy me a coffee dot com slash fexingo. No pressure — it's just what keeps this ad-free and focused on the substance. Luna: Absolutely. We don't have sponsors, so listener support makes a real difference. And now, back to the pivot. Lucas: So Narasimhan's strategy is not just about closing stores. It's about reinvesting in the ones that remain. He's shifting from a 'store count growth' mindset to a 'store experience' mindset. Luna: What does that look like operationally? Better training? More staff hours? Lucas: Yes, both. Starbucks is increasing labor hours per store by about 5 percent, focusing on peak hours. They're also redesigning the mobile order workflow — dedicating a separate pickup area in new stores, and retrofitting existing high-volume locations. Luna: That's a direct response to the chaos. I remember reading that in some stores, mobile orders accounted for over 30 percent of transactions but created bottlenecks. Lucas: Exactly. And the data backs it up: stores with dedicated mobile pickup saw 8 percent higher customer satisfaction scores. So the closure of 400 stores frees up capital and real estate resources to reinvest in the remaining 4,600 US locations. Luna: Is there a risk that closing stores could hurt their market share? Competitors like Dunkin' and local coffee shops could step in. Lucas: That's the tension. But Narasimhan seems to be betting that a smaller, better-run footprint will protect the brand premium better than a sprawling, inconsistent one. And there's precedent — Domino's did a similar thing in the early 2010s, closing weak stores and fixing core operations before expanding again. Luna: We covered Domino's in episode 16. That worked out pretty well. Lucas: It did. The question is whether Starbucks can execute. The first quarter results under the new strategy showed same-store sales stabilizing at around 2 percent, which was better than the 1.5 percent analysts expected. But it's early days. Luna: One number that stood out to me: Starbucks said they saved $50 million in operating costs just from closing those stores. That's money they can pour into training and technology. Lucas: Right. And they're also rethinking their new store prototypes. Onboarding smaller format stores in urban areas — more pickup-friendly, less seating — while adding drive-through only locations in suburbs. That's a dual pivot. Luna: So it's not just a retreat. It's a reallocation. Lucas: Exactly. And that's the key lesson for any business that has grown on a single metric — store count, user count, revenue — without enough attention to unit economics. The pivot is from quantity to quality. Luna: Do you think other fast-food chains will follow suit? I'm thinking of McDonald's, which has also been adding stores aggressively. Lucas: McDonald's is in a different position — their same-store sales are still growing at 4 percent. But they've been watching. And I think the bigger takeaway is that any company that prioritizes growth metrics over customer experience metrics eventually hits a ceiling. Starbucks just hit theirs. Luna: What about the employee side? More labor hours sounds good, but baristas have been vocal about understaffing and burnout. Lucas: The additional hours are a start, but unionization efforts continue. In the stores that closed, a few were unionized — which raised questions about whether closures were strategic or retaliatory. Starbucks says they were based solely on financial performance. Luna: That's a credibility challenge. If you're closing union stores disproportionately, it undermines the 'experience' narrative. Lucas: Fair point. And it's something Narasimhan has to manage carefully. But the core strategic shift — from 'more stores' to 'better stores' — is sound. Whether they can pull it off while navigating labor relations is the open question. Luna: What's the timeline? When do we know if this pivot worked? Lucas: Probably 18 to 24 months. If by mid-2027 same-store sales are back to 4 or 5 percent growth, and customer satisfaction scores improve, it worked. If not, shareholders will start asking for a new plan. Luna: And if it does work, it becomes a case study for any retailer that's overexpanded. Lucas: Exactly. And that's the story we'll be following. Luna: Thanks for listening.