If you've noticed that it takes longer to get your coffee or latte from Starbucks (SBUX 0.87%), you're not alone. This has been leading to increasingly frustrated customers and helped play a part in the company reporting disappointing fiscal second-quarter results that saw sales decline 2% to $8.6 billion. It was its first quarterly revenue decline since 2020 when COVID-19 affected sales.
Starbucks' operational issues have hurt its stock price as well, which is down more than 15% over the past year, while the S&P 500 is up more than 25% over the same period.
Let's look at what is causing Starbucks' long wait time issues, what it's looking to do to fix the problem, and whether the stock can rebound from its recent missteps.
NASDAQ: SBUX
Key Data Points
Understaffed restaurants and unhappy customers
Starbucks admitted on its most recent conference call that it was having trouble meeting its peak morning demand in the U.S., which played a part in the 3% decline it saw in North America same-store sales. Even more worrisome was that traffic was down 7% year over year. The company said it was seeing Starbucks Rewards members putting orders in their carts but then not completing them due to long wait times.
Bloomberg recently delved into the issue. Quoting data from Technomic, it noted that 8% of Starbucks customers dealt with wait times of between 15 to 30 minutes last quarter. It also relayed a story of a customer who had to wait 40 minutes to get a latte on Mother's Day.
After interviewing baristas and store managers, the article noted that staffing is a big part of the problem. It said there are now typically three or four workers making drinks, compared to five previously. The workers blamed an algorithm the company implemented to recommend staffing based on various inputs. However, they said that the algorithm does not take into account drink order customization, or the fact that baristas are expected to interact with guests.
To help fix the problem of long wait times, Starbucks is looking to turn to technology instead of adding workers. It will begin rolling out its Siren craft system in North America this year. The system comes with a custom ice dispenser, milk-dispensing system, and faster blenders all in one spot to help speed up the process of making beverages. It has said it can cut the time to make a grande Mocha Frappuccino from 87 seconds to 36 seconds.
The company will also change the order of how things are made, such as making espresso shots first rather than last. The company also said it will revamp and invest in its Deep Brew technology, its artificial intelligence (AI) platform, to help improve wait time and give customers more transparency. While AI has gotten a lot of hype over the past few years, Starbucks has been using its AI platform for several years for such things as making personalized recommendations, helping create new products, and deciding where to open stores.
Image source: Getty Images.
Can Starbucks stock rebound?
Starbucks remains a beloved brand, even if customers are currently frustrated with the coffee chain. The company needs to improve wait times and the general customer experience, which is something it should be able to do. Technology is a good first step, but fixing its staffing algorithm and understaffing issues is also important.
While technology such as AI can help make things more efficient, the human element is something that shouldn't be left behind, especially for a company that in many ways was built to give customers an experience. Right now, the company seems to have lost its way a bit.
With more staffing would come higher expenses, but if it comes with more sales, the trade-off would be worth it. Meanwhile, frustrated customers and employees aren't going to create a good experience and could hurt the brand, so the faster the company moves to fix this issue, the better.
Starbucks currently trades at about a forward price-to-earnings (P/E) ratio of 22 times. Given its recent struggles, that is a fair valuation, but it certainly is not in bargain territory.
SBUX PE Ratio (Forward) data by YCharts
Overall, I think Starbucks can fix the issues at hand and will be fine over the long term. However, the question is: Can current management fix the issues, or will founder Howard Schultz have to ride in again to help turn the company around? Schultz just recently stepped down from the company's board of directors in September 2023, but things seem to have quickly gone awry shortly after he left.
At this point, I'd likely wait on the sidelines until signs of a turnaround, as the stock is not in the bargain bin. If Schultz comes back and takes a more active role, though, I would be a buyer of the stock.
