“Starbucks doesn’t want to be on every street corner anymore”. The latter, previously inconceivable when it comes to a brand that is synonymous with the ubiquity of urban settings, has become the hallmark of CEO Brian Niccol and his plan to restructure Nike at the price of 1 billion dollars. The coffee giant is shutting hundreds of its urban outlets more than fifty years after flooding metropolitan areas, such as New York and Los Angeles, with coffee, and is responding to its growing competition, the arrival of remote work, and the growing cost of operation.
The shutdowns are considerable 42 out of its city area in New York 12% of them have been shut down as well as in Los Angeles 20 out of its city area and 15 in Chicago and dozens in San Francisco, Minneapolis, Baltimore and others. According to the Center of an Urban Future, in Manhattan, Starbucks has lost its position as the biggest coffee chain to Dunkin. Niccol, a former Chipotle hire, is shifting the company expansion into the suburban drive-through direction as the company is likely to see better margins through lower rent, labor expense, and parking availability there.
This change is an indicator of more profound market changes. Starbucks relied on the morning drive to construct its empire and established it as a “third place” between home and workplace. However, remote work has irreversibly reduced the foot traffic in the central business areas, sucking the clientele of in-store cafes on the ground floors of office buildings. One of Catherine Yeh of CoStar Group states that some downtown locations have shut their doors in Los Angeles after losing their commuter customers. The declining population in the major cities due to the pandemic and only partially caused by 2023 aggravated the problem.
The battlefield has also been remodeled by competition. Starbucks volumes have been eroded by niche coffeehouses, boutique chains such as Gregory’s and Joe Coffee and a flood of smoothie and bubble tea shops. Arthur Rubinfeld, the architect of the Starbucks real estate strategy during the period of its expansion, notes that there is a radical rise in competitive coffee shops which cannibalize the volume of the store. By shutting down poorly performing cafes, he says, he can increase sales in adjoining stores which are bigger and better furnished.
The strategic shift to suburbia is not merely an issue of cost effectiveness; but it is about visiting customers at their new location of work and residence. Drive-throughs have already comprised nearly 60 percent of Starbucks stores in the U.S., and it has been developing positive same-store sales, whereas urban formats are decreasing. The company is also improving suburban service using handheld point of sale devices, curb side pickup and increased loyalty rewards that are earned regardless of mode of payment. The CFO Patrick Grismer has underlined the exploitation of good rent conditions and concessions such as the provision of additional parking spaces to reinforce them.
Starbucks is also redefining its in-store environment alongside closing down of stores. The company will also refurbish 1,000 stores in the United States by the next year by adding seating and power outlets in the stores as well as design improvements that would encourage customers to spend long in the stores. However, analysts such as Sharon Zackfia of William Blair warn that the dilemma between catering to the interests of grab-and-go customers and patrons that desire to stay makes the operations a complex issue. It is not something that can be easily fixed, she says. It has been harder going than some had anticipated.
The cultural identity of the brand is also changing. Starbucks has repealed its open-restroom policy and is a decision that followed a high-profile racial bias incident in Philadelphia in 2018. The new code of conduct, which is exhibited in every store of North America, restricts the use of restroom to paying customers and prevents panhandling, drinking outside, and vaping. One of the spokespersons referred to it as a pragmatic measure that will enable us to put more focus on our paying customers who will be sitting and enjoying our cafes or demand the use of the restroom in the process of their visit. The change has brought Starbucks in line with other large retail stores but it has caused controversy due to accessibility of the service by the masses in the cities with limited restroom amenities.
There are economical and cultural implications associated with this retrenchment. Studies conducted at Northeastern University reveal that shutdowns in larger cities and metropolitan areas may disrupt extensive business connections such that businesses located much further away may also suffer. To most communities, Starbucks withdrawal does not just imply the lack of coffee choices, but also the absence of a social place.
Individual coffee shops could find an opportunity in the vacuity, and with the specificity of their character, close interaction with employees, and their niche, they could win over customers forced to leave. Local shops are unique, as Arda Barlas of Boxx Coffee points out that being different is enough to be unique. The re-calibration of Starbucks highlights a larger reality in retail in the post-pandemic age location is no longer a destiny, and flexibility, even at the expense of failed strategies, is the only way to survive.
