Starbucks' Competition Is Gaining Ground

Growth has slowed for America's largest coffee chain, and competitors have stepped up.

It's impossible to deny that Starbucks is a powerhouse. It consistently sees the second highest annual sales out of any fast food chain in America, only behind McDonald's, and it is often the top Googled brand in the food and beverage category. But Restaurant Business reports that Starbucks' sales slowed down at the end of last year, and it looks like the competition is determined to nip at Starbucks' heels.

Data firm Earnest Insights analyzed credit card data and determined that Starbucks' year-over-year sales growth dropped from 11.1% in October to 3.3% in December 2023, which could indicate that competitors are starting to chip away at the giant coffee chain's business—or at least this might be their opening to do so.

Why Starbucks sales slowed down

This trend was revealed in party on Red Cup Day in November, an annual event where customers can get free reusable red cups with the purchase of a holiday drink. Starbucks' 2023 sales bump on Red Cup Day was 31.7%, which was tepid compared to prior three years, when it saw increases of 81%, 65%, and 74.4%, respectively.

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Negative sentiment on social media about the chain could have put a dent in Starbucks' traffic as well, some of it related to the ongoing Israel-Hamas war. One Starbucks Reserve Roastery location temporarily shut down after large groups of pro-Palestinian protesters entered the building.

Starbucks Workers United, Starbucks' employee union, also posted on X in solidarity with Palestine, leading Starbucks CEO Laxman Narasimhan to release a message denouncing "violence against the innocent, hate and weaponized speech and lies." He said that "misrepresentation" on social media had led to acts of vandalism—notably not mentioning Israel, Hamas, or Palestine by name.

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Where some Starbucks’ customers are spending their money

Some customers have turned to competitor Dutch Bros (a favorite of Gen Z), which is gaining serious market momentum. Foodservice analyst Technomic says it's now the third most popular coffee chain in the U.S. It opened 150 new locations in 2023 and is poised for more growth in the next few years.

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Coffee is big business, and while Starbucks seems like it's always on top of the heap (with continuing expansion plans), it looks like the company has some competition hot on its heels. We'll just have to see how the long game plays out.

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