In a move that might seem less like a caffeine kick and more like a bitter brew, Starbucks has announced plans to sever approximately 900 jobs and close a selection of its underperforming coffeehouses across North America. This revelation came as CEO Brian Niccol continues to implement drastic changes to reshape the company, with the announcement made on September 25.
Since taking the reins in 2024, Niccol has embarked on an ambitious mission to rejuvenate the brand through a “Back to Starbucks” initiative, which heavily features a revamped menu that caters to health-conscious consumers and the renovation of over 1,000 stores in North America.
Concretely, this decision to shutter locations will affect about one percent of Starbucks-operated outlets in North America. The chain aims to finish the fiscal year with over 18,000 shops operational across the U.S. and Canada.
“Throughout our evaluation, we pinpointed stores unable to create the expected ambience for both our customers and partners, or those lagging in terms of financial viability, necessitating their closure,” Niccol stated in his announcement.
Staff members at the affected coffeehouses will be notified this week about the closures. Alongside the closures, Starbucks will also downsize its non-retail workforce, resulting in the termination of 900 positions. Employees impacted by this decision will be contacted on September 26 and will be provided with substantial severance packages and extended benefits to ease the transition.
“These actions are designed to reinforce our successful ventures and ensure our resources are allocated accordingly,” Niccol elaborated.
Interestingly enough, the market reacted rather tepidly to this announcement with shares inching up by roughly 0.1 percent prior to the opening bell. However, their performance thus far this year has been lackluster, with a nearly 8 percent drop in stock value.
Niccol’s strategy, although well-intentioned, has rendered mixed results. Same-store sales have seen a decline for six consecutive quarters, and there has been a 4 percent drop in U.S. transactions for the third quarter of this fiscal year. Despite revenues climbing by 4 percent year-on-year to $9.5 billion, operating margins have plummeted by over 10 percent, driven by escalating inflation and labor costs.
To exacerbate matters, Starbucks is grappling with rising coffee prices, following tariffs imposed on Brazil by former President Donald Trump, affecting about a third of coffee imports to the U.S. As a response, both industry leaders and federal lawmakers are pushing for a tariff exemption for coffee, culminating in the introduction of the No Coffee Tax Act, a bipartisan proposal that seeks to alleviate the financial strains caused by import duties on this beloved commodity.
“American families are feeling the pain of surging coffee prices, which have spiked by 21 percent. Tariffs on a product we can’t produce at scale only aggravate the situation,” remarked Rep. Don Bacon (R-Neb.) in a statement from September 22.
Moreover, external factors like droughts in key coffee-producing countries such as Brazil and Vietnam have significantly hindered production, further inflating prices. In the world of futures, coffee prices have surged by 15 percent to approximately $3.68 per pound on the U.S. ICE Futures exchange. In the latest consumer price index report, coffee prices saw a month-over-month increase of 3.6 percent and a year-on-year escalation of 21 percent.
In a valiant attempt to tackle the challenges posed by tariffs, Starbucks is reconfiguring its operations and adjusting its supply chain strategies. Nonetheless, the firm has asserted it plans to keep its prices stable for the remainder of the fiscal year, although a potential price hike has not been entirely dismissed.
“Adjusting prices is always my last resort,” Niccol noted during a recent earnings call. “I aim to avoid that option for as long as possible. While future adjustments may be necessary, my intention is to keep them minimal.”
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