AI-powered tool miscounts inventory-workers
Outdated systems limit Starbucks’ ability to manage inventory
CEO Niccol has blamed product shortages for lost sales
Starbucks said shortages are improving
By Waylon Cunningham
NEW YORK, Jan 27 (Reuters) - Four Starbucks CEOs over five years have blamed lost sales on its struggle to keep its thousands of U.S. stores reliably stocked with coffeehouse essentials like milk, pastries, and cup lids.
Current CEO Brian Niccol has made fixing the shortages a main measure of his turnaround campaign.
But shortages at Starbucks (SBUX.O) are a more deeply rooted problem than has been publicly reported. And Niccol’s ongoing efforts to keep shelves stocked have so far met with limited success as he encounters outdated technology and a splintered network of suppliers, according to Reuters interviews with 10 current and former Starbucks corporate employees, including senior managers. Reuters also reviewed online videos showing glitches in Starbucks’ latest AI inventory technology, as well as previously unreported photographs provided by baristas of excessive shipments.
“We’ve been transparent about the opportunities in our supply chain, and our transformation plans. We’re modernizing systems with AI-ready platforms, strengthening demand forecasting, and making our distribution network more agile so the right products reach the right coffeehouses each day. This work is already improving reliability for our partners and customers,” Starbucks said in a statement.
Supply chain experts say one of the most critical measures of a supply chain’s reliability is how often delivery trucks arrive at the right time and with the full amount of products. The goal is 95% or more, said Douglas Kent, executive vice president of the nonprofit Association for Supply Chain Management, and rates less than that indicate dysfunction. In early 2024, less than a third of truck deliveries to Starbucks’ distribution centers – company facilities that supply stores – were unloaded on time and included the full amount of the milks, pastries and other products, according to two former employees with direct knowledge of the company’s supply chain. Employees involved in logistics blamed Starbucks’ failure to coordinate its many suppliers. Issues continued into at least late 2025, said two former employees who left around that time. Starbucks’ share price is up about 5% since Niccol took over in September 2024, outperforming a 1% increase in Reuters’ U.S. Restaurant Index but underperforming a 26% gain in the S&amp;P 500 Index. Starbucks’ U.S. sales declined for six quarters before its most recent earnings in October, when it reported flat U.S. sales. Niccol is due to lay out his strategy to investors on Thursday, following earnings on Wednesday.
<h3>NICCOL TAKING ON ISSUE WITH NEW HIRES, TECHNOLOGY</h3>
Additional problems can cascade down the supply chain – such as inaccurate predictions of stores’ product needs – culminating in overstuffed warehouses, empty shelves in stores, and unhappy customers who can’t buy what they want off the menu, according to Starbucks employees at the corporate and store level who requested anonymity because they are not authorized to speak to the media. While avoiding shortages is critical to retaining customers, consultants say, restaurants must at the same time avoid ordering more products than customers will actually buy. Costly waste can sink already-thin profit margins in the restaurant industry. “It’s a tightrope to walk,” said Spencer Michiel, a consultant at the tech-focused Back of House firm.
Niccol’s efforts have taken many forms, including giving store managers more autonomy for ordering supplies from distribution centers. The Starbucks mobile app was tweaked to better allow customers to see where shortages are reported by baristas. In a recent example, the app showed a New York area store was out of bacon and egg sandwiches.
The CEO has also hired veteran logistics executives including new Chief Technology Officer Anand Varadarajan, who previously headed supply chain operations for Amazon’s (AMZN.O) grocery business. But Niccol’s changes haven’t gone far enough, said independent supply chain consultant Brittain Ladd, who has previously advised Instacart and Kroger, and said he spoke at length with Starbucks supply chain executive Mike Bassani after Niccol hired Bassani last year. Ladd, based on his own conversations with multiple Starbucks corporate employees, said Starbucks needs a fundamental overhaul of its supply chain, and criticized Niccol’s highest-profile effort to date – attempting to partially automate store inventory counts – as a band-aid. In September, Starbucks announced the rapid rollout of a tool called “automated counting” that is designed to improve Starbucks’ visibility into shortages at stores. The AI-powered app aimed to replace hand-counts of some products with automated ones that are faster and more accurate. Cafe workers hold a computer tablet up to shelves for syrups, milks and other beverage products, which the app scans with LIDAR and camera data.
But the app frequently miscounts and mislabels items, such as confusing similar milk types or missing them altogether, according to 10 cafe workers and managers. For example, a video uploaded by Starbucks shows the app failing to recognize a peppermint syrup bottle on the shelf as it counts adjacent bottles.
The app’s provider, NomadGo, says on its website it is “99% accurate.”
“What NomadGo set out to do is modernize inventory counting to make it faster and less burdensome while providing timely, actionable data on product availability,” the company said in a statement.
Starbucks said adoption of the app had improved product availability in stores, but did not specify by how much.
<h3>PREDECESSOR’S EFFORTS ROLLED BACK</h3>
Niccol isn’t the first CEO in recent years to try to tackle Starbucks’ supply chain problems, which staffers said became more apparent after competitors bounced back from pandemic-era supply shocks while Starbucks struggled to recover balance.
In 2021, former CEO Kevin Johnson told investors in an earnings call that the company was making progress against pandemic-related challenges on “inventory availability.”
By 2023, former CEO Laxman Narasimhan regularly referred to shortages as “another reason customers choose not to complete their orders” in earnings calls. Narasimhan, in the top office for nearly 18 months until Niccol’s appointment, sought to address out-of-stocks in part by automating how stores order products from distribution centers. The “automated ordering” program, created in partnership with tech firm o9 Solutions, used machine learning techniques to continually refine predictions of upcoming store sales.
The program erred toward recommending too few products, employees said, and in late summer 2024, Narasimhan sought to refine it through an effort called “Never-Out,” which selectively tested larger product shipments, according to employees. “Never-Out,” an initiative that has not previously been reported, was rolled back roughly eight weeks later after Narasimhan was ousted in favor of Niccol, who also later scaled back “automated ordering” shortly before Starbucks’ Fall promotion last year, according to operations employees.
Starbucks in a statement to Reuters said the company had returned “ownership of inventory to coffeehouse teams so they can manage availability.”
o9 Solutions did not respond to a request for comment.
<h3>STARBUCKS’ HIDDEN BOTTLENECKS</h3>
Some employees characterized Starbucks’ supply chain problems as end-to-end, starting with supplier contracts.
Starbucks supplies many of its food products from small, regional vendors that struggle to ramp up production when demand spikes, according to former warehouse employees. “Starbucks never cultivated the relationships with large suppliers that it needed,” said one.
Scattered sourcing creates more headaches. For example, Starbucks juggles 1,500 cup-and-lid pairings from different vendors, executives said in a 2023 earnings call. Former workers say the lack of standardized packaging from these suppliers prevents the chain from automating store-level inventory counts using cameras, as other U.S. food chains do – or as Starbucks does in China, according to employees.
Another key kink in the supply chain is outdated IBM computer hardware that Starbucks uses to process store inventories and resupply orders. In 1997, Starbucks executives touted to a trade publication the company’s use of the IBM AS/400 system for mission-critical operations. Nearly 30 years later, staffers in the company’s technology teams say Starbucks uses what is fundamentally the same architecture.
Starbucks told Reuters in a statement it is modernizing systems, “including replacing platforms like AS/400 with more advanced technology,” to improve product availability and “deliver the consistent experience our customers expect.”
Doing so could prove costly and complicated, staffers said. “It would be like changing the engine of an airplane while it’s flying,” said one involved in supply chain technology.
<h3>TOO LITTLE STORAGE, TOO MUCH WASTE</h3>
Every chain has problems with demand forecasting, supply chain experts said, but employees said that Starbucks’ business model gives it less margin for error.
Whereas other fast-food chains have large backroom storage, Starbucks has less storage in its cafes – and its food and milks are more perishable.
“When you set up a company that’s based on beverages, and then add food, the supply chain isn’t really equipped to scale with it,” said one employee who worked on store operations.
Until about a decade ago, Starbucks stores were designed largely for beverages, with little room in the back to store food products, employees said. The growth of food as a revenue category – from 15% of revenue in 2005 to 23% in 2025, according to Starbucks filings – was a surprise, employees said.
Starbucks donates or throws away products that can’t fit in storage, according to store employees.
An example came in September, shortly after Niccol rolled back “automated ordering” ahead of Starbucks’ Fall food and beverage promotion. Bacon sandwiches, apple croissants and other seasonal foods temporarily flooded stores across the U.S., according to café workers and corporate employees.
Reuters also reviewed six photos of overstocked products. The Food Bank for New York City confirmed it saw an increase in donations of unsold food from Starbucks in September.
Jake Domey, a unionized barista in Danbury, Connecticut, said that one night he threw away three garbage bags of food – the most he’s ever seen in 13 years at Starbucks. “It was an astronomical amount of waste,” he said.

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INSIGHT-Inside Starbucks' supply struggles: AI glitches, scattered suppliers and sandwich shortages