Starbucks’ Mobile Outage Compounds Financial Woes as Q3 Sales Decline

Some Starbucks customers faced a disruption on Tuesday (July 30) as the company’s mobile ordering system failed for the second time this month.

The outage, affecting several major U.S. cities, left patrons dealing with long lines and forced to place orders in person, just as the company was gearing up for a major “buy one, get one free” promotion.

This latest technological glitch compounded Starbucks’ recent challenges, as the company reported mixed financial results for its fiscal third quarter ending June 30. Global comparable store sales dipped 3%, driven by a 5% decrease in transactions despite a 2% rise in average ticket size. North American comparable store sales fell 2%, while international comparable sales saw a 7% decline, with China experiencing a sharp 14% drop.

Despite these hurdles, Starbucks continued its expansion, opening 526 new stores and ending the quarter with a total of 39,477 locations.

Consolidated net revenue declined 1% to $9.1 billion. Net revenue for the North America segment increased 1% over Q3 FY23, to $6.8 billion, mainly driven by net new company-operated store growth of 5% over the past 12 months. This increase was partially offset by a 2% decline in comparable store sales, driven by a 6% decline in comparable transactions, partially offset by a 3% increase in average ticket. Overall foot traffic fell 5%.

Amid the company’s various challenges, Starbucks CEO Laxman Narasimhan remained positive during a conference call accompanying third-quarter results, announced Tuesday (July 30).

“We’re not satisfied with the results,” Narasimhan said. “Our three-part action plan is beginning to work and driving operational improvements that we expect to improve financial performance. Our growing culture of focused innovation and relentless execution continues to enhance our capabilities, while helping return the business to sustainable growth. Our runway for improvement is long.”

On the positive side, the Starbucks Rewards loyalty program saw an increase in 90-day active members in the U.S., reaching totaling 33.8 million in Q3, representing a 7% year-over-year growth.

“Our efficiency efforts, which are tracking ahead of expectations, partially offset investments associated with the cautious consumer environment,” Chief Financial Officer Rachel Ruggeri said. “Collectively, our disciplined approach enables us to preserve both balance sheet strength and flexibility, positioning us to successfully navigate through the current macroeconomic environment.”

Narasimhan noted the company’s best offers are in the app, noting 60% of revenue comes from its loyalty program. Improvements were made to the app, including wait time enhancements and order accuracy. He said data shows one in four non-loyalty members want the ability to use mobile order.

As a result, “we opened MOP (mobile ordering & pay) for all,” he said. “We believe enhanced customer experience, coupled with more frictionless ordering, will increase loyalty program membership.”

Narasimhan said company officials continue to see weaknesses in some international markets. China remains a challenge, he noted, but Starbucks Rewards membership rose to 22 million.

“We see higher growth and opportunities in China in a business more digital, innovative, and locally relevant,” he explained. “We’re in the early stages of exploring strategic partnerships to accelerate our growth in China. The long-term opportunity for us is significant.”

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