As sales drop, Starbucks is killing extra charges for non-dairy options

Starbucks will stop charging customers an extra fee for substituting dairy milk with a non-dairy alternative, part of the mega coffee chain's efforts to fix what its CEO called "very disappointing" sales results and revenue drops.

The change goes into effect on Nov. 7 at its stores in Canada and the U.S., and it will apply to soy, oat, almond and coconut milks, the company announced Wednesday. It has already dropped the surcharge in several countries including the U.K., Germany and France.

The company said that, as a result of the change, the price of non-dairy drinks will drop to be the same as their dairy counterparts. (For example, an oat latte will cost the same as a café latte made with cow's milk.)

Starbucks brought in former Chipotle CEO Brian Niccol earlier this year to tackle key issues afflicting the Seattle-based coffee giant, including overwhelming menus and long waits, and to bring a "community coffeehouse" feel to its locations.

Sales at Starbucks locations both around the world and in North America dropped by two per cent in the company's 2024 fiscal year. Results from October 2023 to the end of September 2024 show it struggled with slumping sales and consumer boycotts.

Niccol replaced Laxman Narasimhan, who helmed the company for just 17 months and was ousted in August. But even after that change, its earnings per share dropped 25 per cent year over year in its fourth quarter.

"We have to make it easier for our customers to get a cup of coffee," said Niccol in the company's earnings call on Wednesday evening, admitting that Starbucks needs to win back customers with a changed strategy.

Niccol also told market analysts that the company will not increase prices at its cafés in North America for its 2025 fiscal year, which would mean from now until the end of next September.

He didn't provide specifics on how much it would cost Starbucks to drop the additional charges for alternative milks, but said he's "confident it's the right investment in the business to get people to re-engage with the brand." 

'They're trying to correct the ship,' says retail expert

Retail analyst Bruce Winder said that the coffee giant is trying to lure customers back while also keeping shareholders happy, but he's not sure the move will have a huge impact.

"Starbucks has been under a lot of pressure recently in terms of sales," especially as consumers stretched by inflation choose more affordable options, said Winder, who is based in Toronto.

"Companies often do this when times are really tough, when the economy is tough. They often introduce value meals, or they find ways to reduce costs to try to sharpen that price point for the consumer, to increase volume and stay relevant."

Some competitors might follow Starbucks in dropping their non-dairy surcharges, Winder said, but also said the cost of non-dairy drinks is only one piece of the larger problems plaguing the company.

"It will have some impact, but not a material impact.... This is just an example of them showcasing one thing they're doing that shows that they're more price-sensitive and that they're trying to correct the ship."

In Canada, many Second Cup outlets still charge extra for non-dairy milk alternatives, while many Tim Hortons locations do not. McDonald's and McCafé outlets have limited non-dairy offerings when it comes to coffee.

Earlier this year, three customers in the U.S. launched a class-action lawsuit against the company, saying the dairy-alternative surcharges violated the civil rights of customers who are lactose intolerant or have dairy allergies.

A Canadian law firm also launched an investigation into the company for a similar nationwide class action. A Starbucks spokesperson said she was unaware of any Canada-specific lawsuits, but said the company would not comment on ongoing litigation.

Starbucks dropping items, rolling back renos

"We're focusing on coffee," said CEO Niccol in the company's earnings call, detailing how menus will become simpler at Starbucks with some items dropped.

The chain's Oleato beverage — an olive oil latte that received mixed reactions, as some customers complained of laxative-like effects — will also be removed from store menus.

The company also said it's going to reduce the number of new stores it opens in 2025, along with cutting back on renovations and bringing back "coffee condiment bars" where customers can add their own milk, cream or sugar to their drinks.