Starbucks is one of the United States coffee giants, known for good customer service, wide menu options, and an overall satisfying experience for people who love a cup of coffee. However, there have been several factors have led to declining profit margins, forcing the company to rethink its strategy and make some changes.
With sales declining 8% year-over-year in the first quarter of 2025, Starbucks has announced mass layoffs, with the jobs of over a thousand corporate employees being cut. Additionally, the company has also announced that it is cutting roughly 30% of its items on the menu.
Menu Reductions
Starbucks has been known for offering a wide range of coffee items to customers, catering to the wide pallet that consumers have. However, the brand is now removing many of its items that are deemed too complex to make and are not selling exceptionally well. These items include iced energy beverages, some of its Frappuccinos like Espresso and Java Chip, and olive oil-infused Oleato drinks.
Even white hot chocolate and the Royal English Breakfast Latte aren’t safe from these menu cuts. The reasoning is that service should be faster with less complex beverages being sold but at the cost of many customers losing some of their favorite coffee drinks.
Layoffs
Employees in the retail side of Starbucks should be safe from any layoffs, but the same can’t be said for those who work in corporate divisions. Among the 1,100 jobs that are being cut, people in HR, marketing, and operations will all be affected.
Starbucks’s rationale behind the layoffs is to simplify the company, and it admitted that it has become “overly complex.” Many unfilled positions have also been dissolved entirely, all aiming to reduce overhead costs and create a more straightforward business model.
Factors Behind The Changes
Cutting over a thousand personnel at the company and nearly a third of the drinks menu is a radical change, but there are factors behind these changes. Starbucks has seen a significant drop in its U.S. same-store sales, with it dropping nearly 10% in 2024. Bottlenecks are being created by online orders, which make up about a third of all sales.
Starbucks is feeling pressured to restructure and reprioritize in the face of declining sales in a bid to improve overall efficiency and bring more customers in, hopefully without putting any off of the franchise in the process.
Customer Impact
While consumers will see 30% of their drink items being cut and immediately see it as a negative, Starbucks has made reassurances that the trade-off will be faster service and better consistency in the products that remain. The brand has also reintroduced old amenities, such as ceramic mugs, handwritten cups, and condiment bars, to draw in old and new customers.
While this may work for a majority, many consumers could feel abandoned as their favorite items get taken off the menu, but for better or for worse, these changes will most likely stay, and it remains to be seen how customer satisfaction will be affected.
Labor Relations
In the last three years, unionization has been developed in more than 30% of Starbucks shops, mandating improved wages and better staffing. The announced layoffs won’t target union-protected employees at the front of the business but rather those who work behind the scenes in corporate roles. Due to this, tensions remain high.
Employees have also noted their concerns about the menu cuts, as they won’t improve the issue of understaffing at the coffee shops or improve the working conditions.
Brand Identity
Starbucks is shifting its business model radically in a bid to improve revenue. This includes parting ways with the “third place” model that Starbucks has been known for, where community members can sit down together and enjoy a cup of coffee. The trend has been slowly declining as consumers are preferring efficiency above all else.
Even the recent change to “Starbucks Coffee Company” implies shifting interests to focus on coffee quality and more streamlined and core coffee beverages. This method could speed up service and simplify the customer experience at the cost of driving away long-time customers who enjoyed the traditional Starbucks experience.
Competitors
Starbucks’ menu items have usually offered variety and interesting flavor combinations over affordability, meaning that many other brands could undercut them, especially in the face of their recently announced changes. Competitors like Dunkin’ and smaller regional coffee shops offer a more traditional menu and many discounts through digital orders that bring in budget-oriented consumers.
Starbucks risks losing customers as it simplifies its menu items and overlaps with long-established chains. Even by focusing on quality, Starbucks has rivals in coffee shops like Black Rifle Coffee and Blank Street Coffee, which offer premium coffee and a sense of community. The coffee industry is fiercely competitive, and Starbucks needs to keep its identity, or else it may hemorrhage consumers.
Impacts On Local Economies
With thousands being laid off, there will be economic impacts in regions where Starbucks’ offices operate. Many employees will be displaced and have to search for new jobs.
If Starbucks continues down this trend, it could start closing underperforming locations, as many companies in the same shoes have done in the past. If potential anchor stores close, then businesses nearby may see a decrease in foot traffic, and commercial landlords will have to scramble to fill the vacant properties.
A Crossroads
Starbucks is struggling to find a way forward as profits fall and drastic changes are made. The company is trying to hedge its bets on nostalgia, which risks alienating younger consumers. Labor tensions, pricing models, and consumer preferences must be further addressed in order to come out of this on top.
Starbucks needs to adapt to a harsh market without losing its loyal customer base and find a way to stand out in a landscape saturated with coffee shops.
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