Call it the "Whole Paycheck" problem.
For Starbucks (SBUX) CEO Brian Niccol to achieve maximum greatness — which would boil down to a sustained turnaround in North America sales by later this year — he must improve consumer perception that the chain's coffee costs too much.
New data out of JP Morgan on Thursday suggests he has a long way to go on this front.
In New York City, a cup of drip coffee from Dunkin' Donuts (now owned by restaurant holding giant Inspire Brands) is priced 10% less than Starbucks. An iced latte is 21% cheaper.
Head to Kansas City, Missouri, and the issue remains the same. An iced latte at surging coffee upstart Dutch Bros. (BROS) is 13% cheaper than Starbucks. At Scooter's Coffee in Dallas, a cup of drip coffee is 32% less than Starbucks.
"Overall we believe pricing is fair versus peers but we believe that an opportunity exists to re-boot... pricing architecture," JP Morgan analyst John Ivankoe said in his client note.
Ivankoe said Starbucks could command what it charges given the experience, which was recently improved by introducing free in-store refills and ceramic mugs.
But the earnings results suggest the pricing conundrum has to be fixed.
Starbucks' most recent quarter showed a 4% drop in global same-store sales as the company pulled back on discounts and consumers shunned its long lines. North America and US same-store store sales dropped 4%.
International sales weren't any better amid pressure in key markets such as China.
Same-store sales overseas declined 4%, with China dropping 6% year over year.
The company's operating profit margins in its North America and international segments fell a combined 510 basis points from a year ago.
As a sign of its challenging road ahead, Starbucks continued to decline to share guidance for sales and earnings for its current fiscal year. Niccol pulled the guidance back in October to free up space to invest in marketing, staff, and in-store experience.
"I think we're definitely in the middle of a turnaround," Niccol told chof360 Finance (video above).
Niccol is also focused on making the mobile order and pay process easier to prevent annoyingly long lines and frustrated baristas.
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Still, he declined to say whether he thinks these actions will bring growth back to Starbucks US this fiscal year.
"We're not where we want to be yet. But I'm confident we stay after these strategies. We continue to test and learn. We listen to the feedback. We take action. We will return to growth," Niccol said.
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The Street thinks Niccol is doing what is necessary to change the company's value perception. The results will take time to materialize, however.
"We are encouraged to see that the price parity on non-dairy milk has worked to bring back lapsed Starbucks Rewards customers in the quarter. We also like the decision to lower promotional activities on the app, leading to 40% fewer promotional transactions in the quarter, while maintaining the price throughout FY25 with no additional increases. We believe that these pricing decisions will help maintain Starbucks’ premium positioning and be accretive to margins while improving on the value perception of the brand," Citi analyst Jon Tower said in a client note.
Tower says price perception could improve further as Niccol "plans revise their pricing strategy with other customization options such as cold foams, espresso shots, as well as additional syrup pumps."
Brian Sozzi is chof360 Finance's Executive Editor. Follow Sozzi on X @BrianSozzi, Instagram and on LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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