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That Starbucks located across the street from another Starbucks could be in trouble

Mike Pomranz
June 20, 2018

The old cliché in business is that you’re either growing or dying. So while speculating that Starbucks is “dying” would seem  unfair, the fact that the world’s largest coffee chain just announced that it plans to close 150 stores next year certainly isn’t a great sign.

After the close of trading yesterday, Starbucks announced a number of significant changes targeted at the Wall Street crowd, including lowering the company’s anticipated growth in global comparable store sales and an increase in its regularly quarter dividend. Blah, blah, blah. But for those who actually spend time sipping Frappuccinos in Starbucks stores, the most straightforward news that speaks to the coffee giant’s current struggles is that the brand is planning to close approximately 150 “underperforming company-operated stores in its most densely penetrated markets." This essentially means that any Starbucks in a major city that is located across the street from another Starbucks could be in trouble.

A mere 150 stores might not seem like a lot for a company that added over 2,000 locations to reach 27,339 stores globally last year, including 8,222 company-operated stores in the United States alone. And closing less than 2 percent of these stores is probably not the beginning of the brand’s downfall. However, Starbucks did admit that 150 closures is three times higher than the company’s historical average of shuttering up to 50 stores annually. The big takeaway would seem to be that though the number of closures might not sound that alarming, the increase in closures could be.

So what is behind Starbucks's current struggles? One extremely interesting indicator is the now-ubiquitous Frappuccino. According to CNN Money, Frappuccino sales in 2018 are actually down 3 percent. It follows a troubling trend for the brand: In 2017, sales of Frapps were up 4 percent; in 2016, they were up 5 percent; and in 2015, they were up 17 percent. Interest in Frappuccinos is clearly waning.

When your signature drink is trending in the wrong direction, you have reasons to be concerned, and Starbucks CEO Kevin Johnson addressed the issue head on. “Our recent performance does not reflect the potential of our exceptional brand and is not acceptable,” he said in a statement. “We must move faster to address the more rapidly changing preferences and needs of our customers.”

One solution Starbucks suggested in its announcement: “leveraging the growing tea and refreshment category, as well as consumer behavior trends towards health and wellness.” Turns out that new Mango Dragonfruit Refresher was more than just a clever summer tie-in.

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