Starbucks has recently closed another location in San Francisco, marking the closure of the café at 295 California St. after nearly two decades of service. This closure contributes to a troubling trend for the coffee giant, which has shut down at least six locations in the city since September 2023, following a series of closures last year.
The recent shutdown at California Street is part of a broader reevaluation by Starbucks regarding its store portfolio. Neighbors of a long-standing Jackson Street location fought to keep their shop open, but ultimately, the 30-year-old café shut its doors. More concerning is the fate of a pickup-only shop located at 7 Drumm St., also in downtown, which faces uncertainty as the chain plans to phase out its phone-ordering concept by 2026.
Starbucks CEO Brian Niccol acknowledged the challenges of the pickup-only format during a recent earnings call. He described the concept as “overly transactional and lacking the warmth and human connection” that Starbucks aims to promote. Consequently, the company announced that between 80 to 90 pickup-only cafes across the U.S. will either close or transition back to a more traditional service model.
The ongoing closures in San Francisco are linked to several factors, including a decline in store sales and slower service. Some locations were closed once their leases expired, while others were shut down in an effort to maintain a “healthy store portfolio.” The company has recently reported its sixth consecutive quarterly decline in same-store sales.
William Blair analyst Sharon Zackfia highlighted that as service speed diminishes, customers become hesitant to spend money at Starbucks. She noted that the slowing pace of service leads patrons to question the value of their beverages, further driving down sales. In response to these challenges, Niccol is prioritizing hiring, but the high cost of labor in San Francisco complicates profitability. Zackfia observed that the city has been slow in terms of returning workers to the office, which impacts foot traffic and store performance.
Over the past decade, San Francisco has seen Starbucks reduce its footprint significantly, with only 37 locations remaining in the city. This is a dramatic decrease from the 71 stores it operated a decade ago. Experts suggest that the company may have oversaturated the market, leading to a need for closures. There may be opportunities for other coffee shops to benefit from this attrition, creating a void that small businesses could potentially fill.
The trend is not isolated to Starbucks; other chains like CVS and Walgreens have also reduced their presence in San Francisco. Following years of aggressive expansion, both have closed numerous locations, resulting in a 40% reduction in available pharmacies within the city.
As Starbucks assesses its strategy in San Francisco, some consumers express mixed feelings about the closures. Frequent customers like Mike, who often visited the 295 California St. café, recognize that economic factors guide these decisions. He speculated that younger generations, particularly Gen Z, might be shifting toward supporting local coffee shops instead of large corporations.
Customer sentiments varied, with one coffee drinker noting the rise of better local options in the Financial District, such as Devil’s Teeth Baking Company. Another theorized about potential changes being considered by the new owner of the 295 California St. property, suggesting that it may not remain a coffee shop for much longer. Attempts to reach a representative for the building for clarification went unanswered.
Despite the wave of closures, some hope that these changes could pave the way for new small businesses to emerge in the vacant spaces. Annie, a 25-year-old visitor to the Drumm St. location, expressed her hopes for a small business to occupy the area. In contrast to the routine she observed, she felt compelled to stop in for caffeine only when necessary, indicating a shift in consumer behavior and preferences.
As Starbucks navigates this complex landscape, insights into consumer preferences and operational strategies will remain critical. The brand’s future in San Francisco will likely depend on its ability to adapt and connect meaningfully with its customer base.
image source from：sfstandard
