Back to Starbucks could mean Goodbye to Loyalty
Brian Niccol is the recently appointed Chairman & Chief Executive Officer of Starbucks, joining the firm from Chipotle in September 2024. Niccol has deep brand experience, having worked early in his career with Proctor & Gamble and eventually as CMO at Pizza Hut and Chairman and CEO of Chipotle. He replaced Laxman Narasimhan, a former PepsiCo executive.
Starbucks operating results have been disappointing over the past year and we share key comments from the past two earnings call transcripts which provide insight into the strategies Niccol is putting into place. His comments illustrate the importance of customer experience and associate satisfaction in creating a vibrant and valuable business. Reading his comments closely, we take away some indicators for the future of customer loyalty at Starbucks, changes could define the future of loyalty marketing with other QSR and retail chains.
Warning Signs for Loyalty in Q4 2024
In the first earnings call (Q4 2024 Earnings Call) since being named to the position, Niccol acknowledged the challenges ahead, saying “Our financial results were very disappointing, and it is clear we need to fundamentally change our strategy to win back customers and return to growth.”
His solution is a strategic plan named “Back to Starbucks” that he says will help the coffee chain “get back to what has always set Starbucks apart.” Starbucks is “a welcoming coffee house where people gather and where we serve the finest coffee handcrafted by our skilled baristas” says Niccol. “Regardless of the consumer environment, we must be at our best to succeed. And right now, despite the hard work of our Green Apron partners, we aren’t always at our best.”
Niccol stated that Starbucks had drifted from its core, noting that “We’ve made it harder to be a customer than it should be, and we focused our marketing too narrowly on Starbucks rewards members.”
That statement was noticed by the loyalty marketing industry and taken as an indicator that the company would possibly reduce emphasis and investment on Starbucks Rewards, instead turning to opportunities to add operational efficiency and improve its in-store experience. The message could not have been more direct “we need to broaden our marketing beyond our Starbucks rewards customers,” said Niccol.
Starbucks went on to report declines in guest traffic across all channels and day parts, with the most pronounced decline in the afternoon day part. A decline in non-Starbucks rewards member visits was highlighted as frequency also slowed across all Starbucks Rewards member deciles in comparison to the prior year.
While Niccol described the rewards program as a “valuable tool,” he also noted a desire to broaden reach beyond Starbucks rewards customers. He placed more emphasis on operational improvements such as being on time and accurate in mobile orders, adjusting prices, and recreating the coffee house vibe that made the chain famous.
Niccol also made a memorable statement which evidences his belief in the importance of a happy and productive work force. The store associates, which Starbucks describes as “Partners” and “Green Aprons” are essential to renewed fortunes at Starbucks, so much so that Niccol said, “the customer experience will not exceed that of the partner’s experience.”
The Impact of Back to Starbucks in 2025
Just this week, Starbucks held its Q1 2025 earnings call. Niccol had one quarter under his belt to work up more details of the Back to Starbucks plan and shared that in the US, it will be driven by four core initiatives:
- Branding: Reintroduce Starbucks to the world
- CX: Deliver the customer experience to win the morning
- Community: Reestablish Starbucks as the community coffeehouse
- Associates: Ensure Starbucks is the unrivaled best job in retail, recognizing our success starts and ends with our green apron partners.
Still, financial results were disappointing. Global comparable store sales declined, primarily due to a 4% decline in the US, while US comparable store sales improved sequentially throughout the quarter with the morning daypart thanks to increased purchases from non-Starbucks Rewards customers.
Niccol reported an uptick in Non-Starbucks Rewards customer traffic quarter-over-quarter, while Starbucks Rewards membership and spend grew both quarter-over-quarter and year-over-year. Additionally, price parity for non-dairy milk customizations brought back lapsed Starbucks Rewards members. New promotions like free refills on hot and ice brewed coffee and tea to non-Starbucks Rewards customers contributed to the positive results.
Has Loyalty Been Equated to Discounts?
We searched both earnings reports for the words “Loyalty,” “Starbucks Rewards,” “Customer Experience” and a few more key terms. It is interesting to note that loyalty did not appear once across both reports. Starbucks Rewards was mentioned mostly in connection with a deemphasis to the program members. Customer Experience, however, was one of the most frequently mentioned terms, along with a few that referred to the “Green Aprons” and “Partners” that staff store locations.
From our translation of his remarks, Niccol puts discounting and loyalty in the same category of marketing activity. He said “the thing that was nice to see is as we stepped away from discounting and went into more broad-based marketing efforts to demonstrate the craft of our coffee as well as the experience or the premium experience you get from Starbucks. We saw non-rewards customers respond with more traffic and more transactions. And so, I think it’s a combination of shifting the approach as far as reaching both rewards and non-rewards customers with, I think a compelling message around the craft and the quality of our coffee and our experience.”
Starbucks will invest in its Green Aprons, announcing that it plans to launch a pilot across 700 stores to improve its green apron partners’ ability to “serve the world’s finest coffee with a moment of connection. We’ll use learnings from this to inform the future investments we need to make in store coverage hours to deliver both an exceptional partner and customer experience and further differentiate our brand.” Niccol added “To deliver a great customer experience, we also have to deliver a great partner experience. It’s why everything we do starts and ends with our green apron partners and why I’m committed to ensuring Starbucks is the unrivaled best job in retail.”
Training the Front Line
That is a message that aligns with best practices that we share in our Loyalty Academy courses. Brands need to invest in associate training, not just to create a positive work environment, but in acknowledgement that the millions of dollars invested in strategy, analytics, communications, and technology are at risk based on how the front-line associates express their understanding and support of customer strategy tactics – including the loyalty program.
Rachel Ruggeri, Executive Vice President & Chief Financial Officer added this comment about Starbucks Rewards “our rewards customers continue to be incredibly important, but we’ve seen value as we speak to all of our customers. And as we’ve shifted out of discounts into more broad-based marketing, that’s helped us reach a broader base of customers, which this quarter, even though we’re early in the turnaround, we saw good signs of progress.” Once again, rewards and discounts seem to be synonymous terms within the Starbucks organization.
Niccol wrapped up his comments in this Q1 2025 earnings call by saying “If you take one thing from today’s call, let it be this; despite near-term challenges, we have significant strengths and a clear plan. The response we’ve seen since fundamentally shifting our strategy to get back to Starbucks gives us confidence, we’re on the track to turn the business around.”
What Starbucks is Teaching Us
For many years, Starbucks Rewards has set the pace for measuring program success. The program was the first at scale to report revenue coverage more than 40%. That level of revenue coverage is still considered by many to be the gold standard of a successful loyalty program.
There are signs now that this model is changing. Ulta Beauty reported at last year’s CRMC conference that loyalty program members represent 95% or more of total revenues. A recent CRMC / Wise Marketer webinar with Bath & Body Works revealed that loyalty members represented 80% of total revenue. While there is a movement among retailers to expand the scope of loyalty program operations, Starbucks may be moving in the opposite direction.
The takeaway is to realize that an enterprise approach to customer centricity is the optimal model for execution. Brands that take into consideration all aspects of operations and establish governance through cross-functional teams, have the greatest opportunity for success. They also will be the brands that can see around corners and make changes in small doses, avoiding program devaluations that damage brand equity and turn off customers.
From what we read into the earnings calls, Starbucks may shift investment from its point-based loyalty program to store operations, associate training, and customer experience. As one CEO told us recently “customers are loyal to experiences, not brands.”
You could certainly substitute loyalty program for brands in that sentence. And that should make you pause and reconsider what your loyalty program will look like in 2026.