Starbucks Corp. faces growing challenges following a recent stock downgrade, as analysts question the company's ability to navigate ongoing legal battles and operational pressures. The downgrade comes amid recent leadership changes and heightened scrutiny from activist investors, all of which cast uncertainty on Starbucks’ short-term recovery.
Newly appointed CEO Brian Niccol, brought on earlier this year under investor pressure, has begun scaling back discounts and promotions, marking a shift from prior strategies that emphasized buy-one-get-one deals and discounted breakfast pairings to attract customers during inflation. Niccol's goal is to streamline store operations by reducing promotions that previously helped boost sales but, according to company sources, created additional strain on employees.
“As a former Starbucks manager of almost 10 years, the culture of quality, consistency, and customer focus doesn’t exist anymore,” said former Starbucks manager Chantell Forbes in a post on LinkedIn. “The advancement of technology in the stores hasn’t helped things to improve. Drinks are inconsistent, three out of five drinks that I would order from my local shop would be not drinkable. At $8 per latte, that’s completely unacceptable. Where are the standards? You can increase staff, build more locations, and advance technology but it won’t change the culture. This is the same for every business. People want a consistent quality product, a clean environment, and welcoming staff.”
Despite Niccol’s experience as former CEO of Chipotle, analysts question whether his changes will stabilize Starbucks, which is facing significant pressure to win back younger customers while addressing declining sales both in the U.S. and internationally, particularly in China.
Starbucks is also facing legal hurdles that could impact its financial outlook. In a class-action lawsuit, shareholders allege that the company misled investors about its financial health in fiscal years 2023 and 2024. According to the complaint, Starbucks executives expressed optimism regarding the company’s reinvention and global expansion strategies but allegedly withheld information about operational challenges in international markets. The plaintiffs argue that these omissions led to financial losses when the information was later disclosed.
The company is also involved in a separate legal dispute with Bodum, a kitchenware brand, over an alleged patent infringement. Bodum claims that Starbucks violated an exclusive supplier agreement and infringed on its patented plunger-filter design for French press coffee makers, and it is seeking damages and injunctive relief. Starbucks has denied Bodum's claims, vowing to defend itself in court.
Amid these challenges, Starbucks recently received a low rating from Ethical Consumer, a watchdog group that highlighted concerns over labor practices in Starbucks’ supply chain. The report specifically pointed to allegations of poor working conditions and low wages for workers in some regions.
Starbucks is expected to release its fourth-quarter earnings at the end of October, which will likely offer additional insight into the company’s performance under Niccol’s leadership. As Starbucks moves into the holiday season, it faces the dual challenge of maintaining its traditional “third place” concept—where customers come to relax and socialize—while addressing demands for digital convenience and speed in an increasingly competitive market.