Seattle — Two years into Brian Niccol’s tenure as Starbucks CEO, the coffee chain has succeeded in bringing customers back, but it now faces a tougher task: converting that sales recovery into lasting profits.
Niccol’s “Back to Starbucks” strategy centered on improving the customer experience. The company sought to shorten wait times, simplify operations and put more resources into its stores and employees.
The strategy ultimately helped end a prolonged sales slump. Comparable sales rose 7.9% in Starbucks’ fiscal third quarter, which ended June 28, marking the company’s fourth consecutive quarter of improvement.
But restoring that momentum has come with a substantial price. Starbucks has committed at least $500 million to labor as part of its restructuring efforts, adding pressure to its operating margins.
Global operating margin dropped to 12.9%, compared with 15.8% two years earlier. In North America, Starbucks’ largest market, the margin fell to 13.6% from 21%.
The company is now putting greater emphasis on controlling expenses while continuing to pursue sales growth. Executive stock awards have been tied to cost-reduction goals through fiscal 2027, and Starbucks has closed hundreds of locations while cutting corporate positions.
Starbucks has also overhauled its international business, including selling control of its China operations as it faces competition from lower-cost rivals.
The company’s stock has risen 30% since Niccol became CEO, though that gain has lagged the broader S&P 500.
That leaves the next phase of the turnaround centered on a key question: Can Starbucks maintain its stronger customer traffic while restoring profitability?
Labor relations add another challenge. Starbucks has yet to reach a first contract with its U.S. barista union, which called for a consumer boycott in August.
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