Starbucks seriously needs to cool it on coffee innovations, analyst says

Starbucks (SBUX) is looking to find itself – but in that search, it’s unlikely to do away with its most popular drinks, even as it phases out promotions and discounts.

Rather than eliminating well-received beverages such as Refreshers, the chain may just need to improve its approach to launching coffee products so that it doesn’t dilute it’s brand and overburden its staff, William Blair analyst Sharon Zackfia told Quartz.

“Refreshers have had more innovation than the coffee platform,” Zackfia said. The drinks have been a staple for Starbucks over the past 12 years, and contribute to approximately 20% of the company’s U.S. sales.

Zackfia argues that Starbucks will need a renewed focus to enhance its in-store experience and expedite service – a critical operational challenge.

Starbucks has notched plenty of successful coffee product debuts, including the Ice Shaken Expresso, Nitro Cold Brew, and Oat Latte. However, Zackfia pointed out that the company’s coffeehouse culture is less about the drinks it offers and more about fostering a connection with customers.

“If a customers wants to drink a nice energy drink, they’ll either do that at Starbucks or somewhere else,” she said. “But how do you connect with that consumer?”

The pandemic and rapid store reopenings have strained this connection. Baristas, who have voiced concerns of understaffing, struggle to engage with customers, especially because of increased order volumes from digital, in-store, and drive thru channels.

The stress on bariastas has been exacerbated by frequent new product introductions, Zackfia argues, which can slow down service. Notably, the sugar and soy milk that once sat by the registers has long been removed, frustrating some customers and making baristas’ jobs harder, the Wall Street Journal (NWSA) reported.

Reducing the frequency of these introductions could provide baristas “some time to breathe.”

Starbucks has been chasing sales with little success. For it’s new CEO, Brian Niccol, that’s a tall order. Promotions like buy-one-get-one (BOGO) offers and 50% off drinks ever Friday have increased pressure on employees without delivering substantial sales. During the most recent quarter, Starbucks reported a slip in sales that revealed it was struggling to reach consumers in the U.S. and abroad. The chain has been trying to find that sweet spot with consumers, but competition and strategic missteps have made it difficult. A $5 meal deal hasn’t helped, nor has a ‘Triple Shot” expansion.

If Starbucks wants to win, it’ll need to prioritize long-term strategies over short-term sales boots from promotions, Zackfia said, noting the difficulties in scaling back without affecting revenue.

With fresh eyes in the C-suite, Zackfia said there will be a focus on building a sustainable path for growth rather than chasing quarterly results. Indeed, the company has a long way to go, and it will need to please shareholders, too.

“Rome wasn’t built in a day,” she said. “Starbucks needs a solid foundation upon which it can grow. The brand affinity is very strong, and that’s a favorable backdrop. It just needs to execute on that.”