Starbucks Faces Rising Coffee Costs as Global Sales Rebound

Starbucks Faces Rising Coffee Costs as Global Sales Rebound

New York / Seattle, October 30, 2025 – After nearly 18 months of declining revenue, Starbucks (SBUX.O) has reported its first quarterly increase in comparable sales, driven by strong performance in international markets. However, the company’s recovery is overshadowed by surging coffee prices, higher labor costs, and continued restructuring expenses that have significantly eroded profit margins.

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Modest Global Growth, Flat U.S. Sales

Starbucks’ global comparable sales rose 1% in the latest quarter, ending a prolonged downturn.
International sales grew 3%, exceeding analysts’ expectations of 1.6%, but U.S. sales remained flat, with store traffic down slightly as consumers reined in discretionary spending.

“Turnarounds are difficult to forecast, and while we expect our U.S. same-store sales to build over the coming quarters, recoveries are rarely linear,” said CFO Cathy Smith during the post-earnings call.

Economic uncertainty, high inflation, and cautious household budgets continue to pressure American consumers, mirroring similar trends seen across the restaurant sector.

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Coffee Inflation Squeezes Margins

Starbucks’ biggest challenge remains the steep increase in coffee bean prices.
Global Arabica prices have risen over 20% in 2025, following a 70% surge in 2024, driven by climate disruptions, supply chain constraints, and U.S. tariffs of 50% on imports from top producer Brazil.

The result: Starbucks’ operating margin plunged to 2.9%, down sharply from 14.4% a year earlier, while earnings per share fell to $0.52, missing analyst forecasts of $0.56 (LSEG data).

Annex Wealth Management’s chief economist Brian Jacobsen noted:

“Starbucks’ cost structure — rent, labor, and raw coffee — remains extremely challenging. The company no longer has the same pricing power it once did in a highly competitive beverage market.”

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CEO Brian Niccol’s “Back to Starbucks” Strategy

Appointed in August 2024, CEO Brian Niccol — known for his successful turnaround at Chipotle — has initiated a “Back to Starbucks” brand reset focused on operational efficiency.
The program includes simplified menus, faster service, and closure of underperforming stores.

“This quarter marks a turning point for our U.S. operations,” Niccol said. “We’ll be selective with pricing next year and avoid broad-based menu hikes.”

Still, the company faces headwinds from elevated costs and increased competition from both premium and convenience coffee brands.

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China Provides Momentum Amid Strategic Adjustments

In China, Starbucks’ second-largest market, comparable sales rose 2%, extending the recovery that began last quarter.
The company has cut prices on non-coffee beverages and added localized menu options to attract a broader consumer base.

Starbucks is also nearing the sale of a majority stake in its China business to optimize capital and streamline its international portfolio.

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Store Closures and Labor Challenges

Starbucks announced in September that it would close around 600 underperforming stores, including its flagship, unionized Seattle roastery.
The company will also invest over $500 million in additional labor hours at U.S. company-operated stores next year to enhance service quality.

Meanwhile, Starbucks remains in a stalemate with its barista union, which represents workers at about 550 stores. Both sides have expressed willingness to resume negotiations after talks broke down in late 2024.

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Outlook

Executives cautioned that elevated coffee bean prices are likely to pressure margins for at least the next two quarters.
However, the company expects steady growth in key international markets such as China, India, and Southeast Asia, where consumer demand for specialty coffee remains strong.

Starbucks will provide an updated financial outlook at its Investor Day in January 2026, after having suspended guidance when Niccol took over.

Bottom line: Starbucks’ turnaround is gaining traction internationally — but rebuilding profitability in its home market will take longer and cost more than investors anticipated.

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Sources: Reuters (Juveria Tabassum & Waylon Cunningham, Oct 30, 2025), LSEG, Annex Wealth Management, Company filings