Why Starbucks' turnaround plans might not win over the younger crowd

By Bill Peters

RBC analysts say efforts to add comfier seats might not work with younger customers who've been going to drive-through chains like Dutch Bros

Starbucks has been dealing with competition from smaller coffee chains like Dutch Bros and 7 Brew.

As Starbucks tries to win back investors and customers amid steeper competition, RBC Capital analysts believe Wall Street's expectations for the coffee chain are too high and say that the company is spending more than they thought it would on its turnaround efforts.

Moreover, they argue, as Starbucks spends more money to make its stores more welcoming, younger consumers, a more online-oriented crowd, might not even care.

With all that in mind, RBC downgraded the stock to its version of a hold rating, from a buy. Starbucks shares (SBUX) fell 5% on Wednesday and have dropped 7.5% amid a five-day losing streak that started after they closed at a one-year high on March 11.

The analysts, led by Logan Reich, said that when they started covering the company in 2024 they initially expected reinvestments in the business to be small and temporary. In the months that followed, things didn't exactly go that way.

"Investment in the business is larger than we previously expected and there's lack of visibility on cost savings hence margin improvements," they wrote in a note to clients.

"Investor top-line growth expectations are elevated, leaving less room for upside," they added.

The downgrade of the stock comes as Starbucks has been trying to improve staffing and service, streamline ordering and make its coffee shops warmer and more inviting, after customers got turned off by higher prices and sought out alternatives like Dutch Bros (BROS) and 7 Brew, which offer energy drinks and more customizable options. Starbucks has also added things like protein and cold foam to its menus.

In January, in connection with its investor day, Starbucks laid out longer-term financial targets for investors, as it tries to chart the course for a bigger rebound. For its 2028 fiscal year, which runs roughly through September of that year, management expects same-store-sales growth of at least 3% in the U.S. and globally, with an adjusted operating margin of 13.5% to 15% and more than 2,000 new stores overall.

Starbucks said in January that it has invested more than $500 million in labor. But it also has plans to deliver at least $2 billion in cost cuts from around 90 separate initiatives - such as rethinking how it sources ingredients - over the next few years.

The RBC analysts said that the same-store-sales target was doable. But they argued that with so many smaller pathways to cutting costs, as opposed to a handful of larger ones, it was harder to calculate the ways those cuts might boost margins.

A revamped loyalty program, they said, had gotten mixed reactions among consumers. And they said efforts to offer things like comfortable seating and ceramic mugs in its shops might not attract younger customers.

"Given the success of drive-through chains like aforementioned Dutch Bros & 7 Brew, particularly with Gen Z, it's not entirely clear that making [Starbucks] stores more welcoming/enticing for sit-in customers will resonate with younger consumers," they wrote.

Despite Wednesday's weakness, shares of Starbucks have rallied 13.3% so far this year, while shares of Dutch Bros have dropped 16% and the S&P 500 index SPX has slipped 2.5%.

-Bill Peters

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03-18-26 1948ET