How Starbucks Is Dodging Dismal Consumer Sentiment

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0:32President Trump hints at an extended Iran blockade as its economy reels from the heavy cost of war. Plus, AI jitters return to Wall Street as four tech giants prepare to face investors. And against a backdrop of consumer anxiety, why Starbucks is targeting service over deals. It's not going to be a game of discounting or one-off promotions. I think people actually really do appreciate knowing, hey, if this is a$3 cup of coffee or a$5 latte, I know I'm going to get a great experience for that$5 experience. I'm in. It's Wednesday, April 29th. I'm Luke Vargas for The Wall Street Journal. And here is the AM edition of What's News, the top headlines and business stories moving your world today.

1:18President Trump has instructed aides to prepare for an extended blockade of Iran, aiming to compel the regime to give up its nuclear ambitions. That's after a Monday meeting in which officials say that Trump rejected Iran's proposal for peace talks and assessed that his other options to resume bombing or walk away from the conflict carried more risk than blocking Iranian ports. Here's Journal-Foreign correspondent Margarita Stankati. Tehran's deal essentially offered to stop its attack in the Strait of Hormuz in exchange for a full end to the war and the lifting of the U.S. blockade of the Iranian ports.

1:56And as part of the deal, also, Tehran wanted to postpone any discussions about Iran's nuclear program. And the U.S. sees that as evidence that the blockade, as an instrument of economic coercion, is working. Trump's decision comes even though the blockade has driven up gas prices and hurt his polling ahead of the midterms. Margarita says now the calculus for Iran and the U.S. looks increasingly like a zero-sum game. The U.S. and Iran have both weaponized the Strait of Hormuz with the goal of forcing the other to rethink its political calculations. But this comes at a cost. So Iran closed the strait early on in the conflict and effectively using this critical waterway to hold the world economy hostage.

2:40The U.S. responded with a naval blockade of its own, dealing a devastating blow to Iran's economy. So the situation at the moment is that U.S. officials are betting that Iran will soon crack because of this deepening economic crisis. Iran, however, is betting that the U.S. will crack first because of the repercussions the closure of this trade is having on global markets and also to bring down gasoline prices at home. But the question is, how much pain is both sides willing to endure to have a stronger hand in negotiations? The White House is warning lawmakers about more disruptions at airports, with funding for DHS workers set to run out by May.

3:24To avoid that, its Office of Management and Budget is calling on House lawmakers to pass a DHS funding bill that was approved by the Senate last week, though that may not be so easy. Republican House Majority Leader Mike Johnson has pointed to problematic language within the DHS bill and has thus far declined to put it up for a vote. Meanwhile, other divisions have broken out among his caucus over reauthorizing a controversial overseas spying program and the latest five-year farm bill, effectively paralyzing the chamber. Jimmy Kimmel is doubling down on his criticism of President Trump after the president called for his firing over a joke last week in which the late night host said that Melania Trump appeared like an expectant widow.

4:06And in yesterday's monologue, Kimmel played a clip of Trump apologizing to the first lady for likely not being able to match his parents' 63-year marriage. Only Donald Trump would demand I be fired for making a joke about his old age and then a day later go out and make a joke about his own old age. The clash coincides with FCC Chairman Brendan Carr's early review of Disney's broadcast licenses, which include Jimmy Kimmel Live broadcaster ABC. The Fed is set to announce its next rate decision later today, its last meeting before Chair Jerome Powell's term ends next month. With it all but certain to hold rates steady, investors will be focused on whether it sticks with language dating back to late last year, implying that its next move was most likely to be a rate cut.

4:54A few hours later, earnings season will reach a fever pitch with a quadruple header of big tech results this afternoon from Alphabet, Amazon, Microsoft, and Meta. They're reporting as AI jitters return to Wall Street, raising investor eyebrows about the wisdom of massive investments. Later today, Ford's earnings are expected to show the carmaker swinging to a loss as high gas prices raise affordability concerns for consumers. According to AAA, U.S. pump prices are up a further five cents on average this morning. Affordability concerns cropped up in a number of earnings updates over the last day, with Adidas flagging that retail was broadly contending with high volatility and heavy discounts in many markets.

5:35And the CEO of Oreo maker Mondeliz, Dirk Vandeput, said that while buying patterns hadn't worsened yet, that could change if the Middle East conflict drags on and leads to higher inflation. We can look at the basket, the shopping basket, which has not increased in dollar value for three years now. But at the same time, the items in that basket have gone quite up in price, and so consumers need to take more conscious decisions. We see shifts where higher-income consumers, yes, buy premium products as the case-shape economy, but then we also see lower income consumers really focused on lower unit prices and being very selective when and what exactly they buy.

6:16Coming up, we'll ask the CEO of Starbucks if the brand is seeing that K-shaped trend as well. And could the biggest U.S. soccer home game in decades fail to sell out? We'll take a look a mere six weeks out from the World Cup kickoff after the break.

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7:08What can a coffee purchase reveal about the state of the consumer? In the case of Starbucks, the answer may be that some purchases are just worth it, even when consumer sentiment is as gloomy as it's been in years. The world's biggest coffee company just reported earnings, posting a 7.1 % jump in U.S. same-store sales for the quarter ending March 29th, with revenue also topping estimates up 9 % to$9.5 billion. Brian Nickel is the CEO of Starbucks. Brian, thanks for being with us. Could you just begin by painting a picture for us of the Starbucks customer? Who are they? How much do they spend, let's say, when they visit a U.S.

7:45store? Yeah, so, I mean, one of the things that's great about Starbucks is it really is one of these brands that resonates with just about everybody, you know, from the 15-year-olds all the way up to the 80-year-olds. We do definitely over-index with kind of the teenage crowd. And also right now we're doing really well with Gen Z and millennials. And then we really had strong performance across all income cohorts. You know, and then the average spend is a little less than$10. So you're kind of in the$9 to$10 range. And that really depends on whether or not you're attaching food to your drink purchase or how much you're modifying your drink purchase.

8:23But it can start with as little as, you know,$3 for a traditional cup of coffee. And then obviously you can build your way into all sorts of customized drinks that people love that move that ticket up. You mentioned sort of strength across income cohorts. We've heard so much this year about the K-shaped economy. Fortunes for some Americans, very different than for others. Is that not really something that's coming up in your sales? You know, we're not seeing that in our business. What we're seeing is people, you know, they want to have a special experience. And regardless of what your income level is, in some cases, you know, a$9 experience does feel like you're splurging.

9:01And then what that means is we have to make it worthwhile, right? And then in other cases, people believe, well, this is a really affordable premium experience because they're saying like, well, it's less than$10 and I get a really premium experience. We just saw on Friday, I'm sure you've seen the U.S. consumer confidence reading. Perceptions of the economy are worse than they've been since the 70s, since 08, since the pandemic. There's some pretty bad reference points here. Just how do you market to that consumer? Yeah, you know, look, when we've spent the time talking to customers, you know, what is it that you're looking for in your experience?

9:33They do talk about how they use their Starbucks experience as a moment of escapism. And, you know, my hope is we get more than our fair share of all those occasions. We can focus on when you walk into our stores, you feel warm, you feel welcomed, you feel like this is your place. We can control our ability to get you that exact drink at the speed of which you need it, the speed of which you want it. And then we also, you know, can open up a great seat where if you want to stay and dwell with us, we got that for you too. Part of that is you're not playing the value game. Well, I think we're just playing it a different way, which is the way we're going to play the value game is you're going to feel like it was worth it.

10:10and it's not going to be a game of discounting or one-off promotions. I think people actually really do appreciate knowing, hey, if this is a$3 cup of coffee or a$5 latte, I know I'm going to get a great experience for that$5 experience. I'm in. And I think if you have to try and compensate for not delivering on the experience, then that's where I think you may have to lean into other promotions or discounting opportunities. But that's really not what is in the DNA of Starbucks, which in the DNA of Starbucks is this idea of, you know, humanity happening in a third place and getting you the customized experience that you want.

10:52And if you can count on that, then I think you feel good about handing over, you know, your hard earned dollar. You seem quite committed to the humanity aspect of it at a time when, at least in Silicon Valley, the whole theme this year is trim headcounts, embrace AI. I bet you've been pitched that AI could take an order pretty quickly and wouldn't need a 401k. How do you respond to that? Don't get me wrong. We're going to be leveraging technology behind the scenes, but I want AI and technology to enable our barista to provide a better moment of connection or free them up to spend more time on their craft and the ability to present that human to human experience.

11:30And I'll give you a great example. Even in our drive-through, we've experimented with, hey, do you use like an AI tool to take the order? And what we found is you're still better off having a person interact with our customer through the order experience. And then behind the scenes, we're using AI to listen to what that order is so that it gets inputted into the point of sale machine correctly, accurately, and then also can track where the order is so that by the time you get to the window, the drink is made and ready to go. But we've protected that human-to-human experience even through the order board.

12:06Brian Nichol is the CEO of Starbucks. Brian, thank you so much for the time and for being with us on What's News. Hey, thanks, Lou. Great being with you. And finally, soccer fans are gearing up for the World Cup. But with just six weeks to go, senior sports writer Rachel Bachman says that tickets for the first U.S. match in Los Angeles are still available as sky-high prices keep many away. Fans have responded to ticket prices with shock. FIFA is using what they call dynamic ticket pricing, which means the prices are set to respond to the demand. And what this has meant is enormously high prices, shockingly so.

12:46Generally for that U.S. opener, tickets are priced at$1 ,940 to over$4 ,000. It's yet to be seen whether this game will sell out. My sense is it probably will, but the fact that there are still tickets on sale is pretty remarkable given that we are now weeks away from kickoff. According to Rachel, official prices on FIFA's website for the July finals range from$4 ,000 to$10 ,000. While FIFA didn't comment on the U.S. opener, the organization has confirmed it's using demand-driven dynamic pricing in order to maximize World Cup revenue. And that's it for What's News for this Wednesday morning. Today's show was produced by Hattie Moyer and Daniel Bach.

13:28Our supervising producer is Sandra Kilhoff, and I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.

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