- Earnings are down nearly 50% YOY, and rivals are surging
- But Starbucks insists their plan is on track and that it’s investing in long term recovery
- Has the “back to Starbucks” plan simply missed its moment?
NINE months into Brian Niccol’s tenure as Starbucks’ CEO, the world’s largest coffee chain is facing a financial and narrative dilemma.
Net earnings have plummeted by nearly 50% year-on-year, to $384.2 million in the second fiscal quarter of 2025, according to the firm’s latest earnings report. Fewer people are visiting Starbucks, and it’s starting to show. Global sales at stores open at least a year fell 1% as customer traffic dipped by 2%. Those who did stop by spent a little more on average, helping to cushion the drop.
In the U.S., sales were down 2%, with fewer visits driving the decline; even though individual orders were slightly more expensive. In China, the story was more mixed: more people came through the doors, but they spent less, leaving overall sales flat.
The news has rattled investors, as shares fell 6.5% in extended trading. The stock, which had surged in the months following Niccol’s appointment as CEO, is down about 7% so far this year, fuelling doubts over whether Starbucks’ strategy reset is working.
Brian Niccol, formerly of Chipotle, is looking to reassure investors in the latest earnings report: “My optimism has turned into confidence that our ‘Back to Starbucks’ plan is the right strategy to turn the business around and to unlock opportunities ahead. We are on track and if anything, I see more opportunity than I imagined.”
Starbucks’ chief financial officer, Cathy Smith, admits that financial results are far from Starbucks potential, but that they can be justified by “long-term, durable growth and strong returns on invested capital.”
The idea is simple: short-term profit pain in exchange for long-term structural gains.
“Starbucks isn’t just facing short-term pain,” says Saswat Sidhant Prusty, Business Analyst at Amazon.
“It’s confronting a deeper misreading of consumer sentiment. While operational efficiency and digital convenience have improved, they’ve come at the cost of the in-store experience that once defined the brand. In trying to scale faster, Starbucks has drifted away from the emotional core that built its global following.”
The scale of the pain is notable. Traffic is down, margins are under pressure, and loyalty in key growth markets is wavering. In China, Starbucks’ comparable store sales fell 11% in May 2024 and remain flat – with news of prices wars and struggling sales making headlines.
Homegrown rivals like Luckin Coffee and Cotti Coffee are expanding rapidly, undercutting Starbucks on price and tailoring their offerings to local tastes. Starbucks, by contrast, raised prices globally and leaned into premiumisation, a bet that now looks increasingly risky.
The company’s interim solution – share buybacks and promotional discounts – has done little to soothe investor concerns. The core Starbucks value proposition seems to have been diluted, according to critics. Higher market prices mean they’re no longer the everyday stop, but the indulgence – something most consumers can ill afford right now.
A plan in search of a moment
When Niccol took over, he launched what Starbucks called its “Back to Starbucks” plan: a push to revive in-store visits through a mix of operational streamlining and targeted reinvestment.
The company pledged to modernise equipment, simplify workflows, and shorten wait times. At the same time, it committed to redesigning stores, boosting employee benefits – tripling its paid parental leave for store partners – and offering new menu innovations aimed at drawing consumers back into cafés post-COVID.
But consumer behaviour has shifted more than Starbucks anticipated.
According to the National Coffee Association’s 2025 Spring Trends Report, overall coffee consumption in the U.S. remains stable, but café attendance is down 22% compared to pre-pandemic levels. Americans are drinking coffee at home or opting for fast-casual options that combine convenience with affordability.
Gen Z, in particular, values customisation, affordability, and non-coffee alternatives – areas where newer chains are gaining ground.
“Gen Z craves authenticity, affordability, and personalisation; none of which align neatly with the current Starbucks strategy,” says Saswat.
“ ‘Back to Starbucks’ feels more nostalgic than forward-looking. To remain viable, the company must evolve beyond coffee and reimagine itself as a cultural hub. One that blends community, craft, and discovery.”
In China, the situation is more precarious. Value-focused competitors are capturing market share. Starbucks isn’t giving up on China – yet. The company grew its store count there by 10% last year to 7,685, though it’s still short of its 2025 target of 9,000. Meanwhile, rival Luckin surged ahead with over 22,000 stores – a 37.5% increase.
Cotti Coffee, the fastest-growing startup in the segment, has launched overseas outposts and introduced aggressively priced promotions that have forced Starbucks onto the defensive.
In response, Starbucks is making moves. Its China chief stepped down in January, and CEO Brian Niccol is now exploring strategic partnerships to revive the struggling unit, reportedly valued at around $1 billion. Potential partners include Meituan, China Resources, and several private equity firms.
In Europe, the mood is equally grim. The European Coffee Federation reports that coffee consumption has dropped across key markets as inflation, energy prices, and consumer fatigue weigh on discretionary spending. Starbucks’ high-price, low-flexibility model has found limited appeal in a continent already saturated with local cafés and discount retailers.
Niccol’s strategy was designed for a post-pandemic revival built around “elevated experiences.” But consumers now seem more interested in accessible, value-driven brands. Has the moment for Starbucks’ current model passed?
So what is working?
Despite the gloom at Starbucks, the global coffee shop market is not in decline – it’s merely shifting. Several other business models are proving successful by aligning more closely with local consumer needs, digital fluency, and economic realities.
In the U.S., brands like Dutch Bros and Scooter’s Coffee are gaining traction with drive-thru-focused models that emphasise speed, affordability, and customisation. Dutch Bros reported an impressive 29% revenue growth and system same shop sales growth of 4.7% in Q1 2025, with over 1,012 locations now open and more planned. The brand’s combination of quick service, energetic branding, and price sensitivity has helped it capture younger customers.
In Europe, homegrown chains like Costa Coffee in the UK and Espresso House in Scandinavia have weathered the downturn by focusing on loyalty programmes, diversified food menus, and accessible pricing. Pret a Manger, after a tough pandemic, rebounded by pivoting toward digital subscriptions and grab-and-go formats, reporting 10% sales growth in the first half of 2024.
Black Sheep is listening to Gen Z demand for iced and non-coffee beverages, recently reporting a 227% year-on-year surge in iced beverages, and influencers like Emma Chamberlain are successfully reinventing the third place with a model that resonates more authentically with younger audiences.
China remains the most competitive and dynamic market. Luckin and Cotti have succeeded not just because of price – but because of digital dominance, rapid delivery, and frequent, gamified promotions via mobile apps. Luckin’s “10 RMB Latte” campaign – roughly $1.40 – has redefined expectations around premium quality at a discount price, and even though the “price wars” are coming to an end, they have left their mark in terms of consumer expectations. Their growth is also underpinned by leaner store formats and limited staffing, which help maintain profitability even at low margins.
Food offerings are playing a larger role as well. Chains like Tim Hortons India are experimenting with locally tailored food menus that pair well with beverages and boost average ticket sizes. These diversified offerings help hedge against pure coffee volatility and broaden consumer appeal.
“The bigger challenge isn’t just Dutch Bros or Luckin,” says Saswat. “It’s the rise of local specialty cafés that prioritise craft, community, and storytelling.”
“These independents may not scale globally, but they win hearts locally. Starbucks deserves credit for revolutionising coffee culture, but at the end of the day, it’s still coffee and there’s a ceiling to growth when the product becomes too standardised. To compete meaningfully, Starbucks must rebrand itself as the global stage for coffee artistry, where the best baristas, not just algorithms, define the experience.”
While brand legacy is important, format, flexibility, and price also matter. Consumers are not abandoning coffee or cafés altogether; they’re rethinking where, how, and how much to pay for it.
If Starbucks wants to regain its footing, it may need to retool its strategy in a way that reflects its core value proposition and cultural legacy, but at the same time without compromising on what people want right now – not an easy task.
Coffee Intelligence
Want to read more articles like this? Sign up for our newsletter here.
