Starbucks overhauling up to 1,000 stores, starting with 4 in the Hamptons, to win back customers

Four Starbucks stores in the Hamptons are the first of up to 1,000 shops nationwide to undergo a redesign in the next year aimed at a turnaround for the coffee chain seeking a return to its "community coffeehouse" roots.

Starbucks remains the world’s largest coffee chain, but the Seattle-based company has reported five straight quarters of declining sales at U.S. stores open at least a year, amid growing competition from independent and national coffee retailers, and as consumers cut back on discretionary spending.

Faster-growing regional chains, such as Dutch Bros Coffee, 7 Brew and Scooter's Coffee, have chipped away at Starbucks' market share, said David Palmer, senior managing director and restaurant analyst at Evercore, an investment banking firm in Manhattan. 

Unveiled in June in the Hamptons and first reported by CNN, the updated store design is part of the company’s “Back to Starbucks” strategy — a plan focused on employee investment, streamlining the menu to the most popular items and improving the in-store experience to lure back customers who once lingered in the coffee shops.

Starbucks Corp.'s CEO Brian Niccol, who started in September, is behind the changes.

"We don't know what the state of the consumer will be in the months to come, but I'm confident we're building a globally resilient business rooted in the strength of our brand, focused on the customer, and enabled by world-class partners at the local level that can succeed in any economic environment," he told analysts during an earnings call in April.

The goal of the “Back to Starbucks” strategy is to reestablish Starbucks as the community coffeehouse, the company said.

The redesign includes more seating, warmer lighting and cozier interiors.

The updates also include the return of power outlets, condiment bars and markers for baristas to write messages on cups in U.S. stores. Ceramic mugs and glassware are being added for customers who drink their beverages in the stores, and espresso bars are being updated. 

The changes mean a return to some of the features that gave Starbucks a reputation as a “third place,” a term for settings other than home and work, such as coffee shops, parks and other places where people linger to socialize.

“We're working hard to ensure our coffeehouses have the right vibe," Niccol told Starbucks shareholders during an annual meeting in March. "We want to invite customers in, showcase our great coffee, provide a comfortable place to stay and make them feel like their visit was time well spent.” 

Starbucks' redesign will start with up to 1,000 company-operated stores in the next year, but it plans to redesign all of its U.S. stores over the next three years, the company said.

In the United States, there are 6,805 licensed Starbucks stores and 10,317 stores that are company-operated. There are more than 40,000 Starbucks stores in 88 markets around the world. 

Starbucks has five stores in the Hamptons. The company's corporate office said one of the four redesigned Hamptons stores is in Bridgehampton but it did not respond to Newsday's inquiries about the locations of the other three stores or why the Hamptons stores were the first to be redesigned.  

But, according to employees in some of the Hamptons stores, the other three redesigned stores are in East Hampton, Southampton and Hampton Bays.

Shifting back

Under its previous leadership, Starbucks had shifted heavily to digital and drive-thru sales as opposed to the in-store and traditional café experience for which the chain was famous.

“Many of their stores had cleared out their furniture in urban locations, clearly saying, ‘We don’t want you to hang out there,’ ” Palmer said.

About half of Starbucks’ business today is from the drive-thru and a quarter of the sales are from mobile order pickup, he said. That drive for speedy service, as well as the complexity of orders, put a strain on store staff, leading to high employee turnover, he said.

“Arguably, if you’re a big brand, you might want to be better than local competitors in both how you pay your people and treat your people, and execution of the coffee,” he said.

Current management is increasing staffing and using artificial intelligence to prioritize in-café orders over mobile ones, Palmer said. 

Starbucks will be adding one to three employees per company-owned store in the United States, which could cost an estimated $1 billion annually, he said.

Starbucks built its brand on the in-store experience, which is what the chain is trying to return to, he said.

In its fiscal second quarter, which ended March 30, Starbucks reported $748.3 million in operating income in its North American business segment — a 35% drop from $1.1 billion in the same period a year earlier.

By Tory N. Parrish

tory.parrish@newsday.comToryParrish1

Tory N. Parrish covers retail and small business for Newsday. She has worked at the Pittsburgh Tribune-Review and Observer-Dispatch in Utica, N.Y.