Is Starbucks Closing Stores?

It has revolutionized the coffee market. It offers a variety of products, e.g., smoothies, tea, sandwiches, pastries, e.t.c. Due to its free Wi-Fi, it has also become a popular place where people like to work. It enjoys a cult following.

However, in June 2020, it announced that it would close 600 stores in North America by 2021. It was shocking to its customers and made them curious. In October later that year, it announced that it would close 200 additional stores in North America, and another 250 international stores closures would soon follow.

But what’s the intention behind these decisions? 

Let’s look at the reasons behind this move of the Coffee Giant:

1. Low profitability

Like every multi-store business, the performance of every Starbucks store is periodically reviewed against the standards set. They are given a specific quota of profitability. If they are unable to meet it, they are given a chance to improve. 

The stores that are being closed are the ones that performed poorly and could not turn around their profitability. They failed to meet the expectations of the company. They either didn’t have enough customers or the overheads were too high. The closures are thus being seen as a routine affair and a diligent move by the company.

2. Impact of Coronavirus

Moreover, the Coronavirus pandemic hit the revenues of businesses drastically. Even the coffee giant could not escape its effects.

 Its income levels reduced significantly. Its net income reduced from 3599 million US$ in 2019 to 928 million US $ in 2020. It is thus closing the lower performing stores e.g. the ones located in metropolitan areas as they performed worse than those located in suburban areas due to stricter lockdown restrictions.  They want to focus on areas where they are needed more by the customers. 

3. Remodeling efforts

It seems that the pandemic is still not over and the threats of new variants persist. To boost sales in the post-pandemic era and align with modified customer behavior, Starbucks is remodeling its stores. In October 2020, the majority of its sales were made through drive-through and mobile orders.  It is thus undertaking innovative measures.

It is focusing on opening stores that support a drive-through lane so that it can do away with seating. In this way, it can operate even during social distancing restrictions. It wants to focus on pickup and takeaway. It also wants to more extensively use technology, especially its app to enable customers to order their beverage and track it. In urban areas, it has also partnered with UberEats for deliveries. It wants to reduce human-to-human interaction as far as possible. It wants a more efficient model which caters to the demands of the customers for increased convenience.

4. Curbing Unionization

Starbucks has also closed 2 of its stores in Buffalo, New York, in what is being seen as an effort to quell the unionization efforts by its employees. Starbuck is against unions and a temporary closure is being used to communicate this to the employees. There have been reports of its high-level executives traveling to these areas and holding meetings. 

Conclusion

Thus it can be seen that there are multiple reasons for the store closures- low profitability, coronavirus pandemic, change in strategy, and the unionization efforts. 

A Starbucks cafe near you might close and you might have to travel more to reach one. You might also miss the fun of sitting in a cafe, smelling the coffee being made, waiting for it, and then relishing it while enjoying good music and free Wi-Fi. But the company would come out of it as more viable and with a stronger financial position. These measures will help the company achieve long-term growth.

Should these closures be considered a cause of concern by coffee lovers?

No. It is being seen that the space left by Starbucks is fast being taken up by small indie cafes, which offer all these services. They also provide you an opportunity to interact directly with the small cafe owners and have personalized services. 

Is Starbucks also opening new stores?

Yes. If you are a die-hard Starbucks fan, there is also no need to panic as Starbucks is simultaneously working on opening up new stores- 850 in North America and 1300 in international locations. Thus, the net effect of these decisions would be new stores.

What would be different about the new stores?

New stores will open up at locations that are more profitable for the company. These stores are likely to be based on a different model, whereby drive-through lanes would be focused upon. Thus, the recent closures should be seen as just a change in portfolio.