By David Wainer

Starbucks is winning back customers in the morning. To regain investors, it has to own the afternoon.

The economics of a typical Starbucks store tell a tale of two shifts. Locations are typically open from dawn until late evening, yet more than half of company-operated U.S. store sales -- roughly $12 billion annually -- happen by 11 a.m.

Once the morning caffeine rush fades, the company enters a slower stretch. The lights stay on and baristas remain on the clock, but customer traffic isn't as strong.

If Chief Executive Brian Niccol can make those postlunch hours as productive as the 7 a.m. to 9:30 a.m. surge, he won't just improve unit economics, he could finally get the stock moving after nearly five years of stagnation.

The bar is high, but investors like what they see so far. The stock is up 14% this year on promising early results. Starbucks recently posted its strongest U.S. same-store growth in two years, pointing to better execution and transaction growth. At its investor day late last month, Starbucks projected revenue growth of 5% or more by its 2028 fiscal year.

The problem is that -- thanks in part to Niccol's reputation as a turnaround savant -- the shares already price in a successful recovery. At roughly 37 times forward earnings, the stock trades at a steep premium to such peers as McDonald's and Chipotle Mexican Grill.

To justify that rock-star multiple, Starbucks must show it can do more than rebound from several years of morning mosh pits and barren cafes with disappearing furniture. The company does have long-term ambitions to open as many as 5,000 new U.S. coffeehouses, but in the near term it needs to pull internal growth levers.

The afternoon might be its best opportunity. But it won't be easy.

Starbucks has talked for years about turning the afternoon into a genuine peak to rival the morning rush. The investments now under way -- from higher staffing levels and faster equipment to redesigned seating that makes cafes more inviting -- have the potential to transform the business into something even bigger. If they fail, the stock will prove to have been overvalued at this level.

Some of the most successful restaurant turnarounds have come from winning a new time of day. Fixed costs like rent and utilities don't change, so boosting traffic during slow hours is far more profitable than cramming more customers into already-busy shifts.

McDonald's famously revolutionized fast-food economics by adding breakfast. This move featured such items as the Egg McMuffin and coffee, which have a much higher margin than beef. Breakfast became so popular that when the company made it an all-day staple, growth exploded.

Starbucks is now trying the inverse: turning itself into a credible all-day snack-and-beverage business. This creates a strategic tension.

Under his Back to Starbucks plan, Niccol is publicly returning the brand to its roots, even reclaiming The Starbucks Coffee Company as its name. Ceramic mugs are back, and the idea of the cafe as a welcoming third place is being reinstated.

Yet a cafe has to deal with the consumer's caffeine ceiling. As the day goes by, Americans tend to shift toward sparkling beverages, ice teas or cold energy drinks, said David Henkes, senior principal at Technomic, a food-service consulting firm.

To succeed, Starbucks must pull off a delicate balancing act: revive the classic coffeehouse atmosphere while reminding customers that it also offers an entirely different universe of beverages and snacks tailored to the afternoon. In effect, it needs to operate two Starbucks at once.

There are clear signs the company gets this. Starbucks is rolling out digital menu boards across its U.S. stores, allowing it to spotlight items better suited to the afternoon, such as matcha drinks, flatbreads or protein energy balls, and gently nudge customers toward new habits as the day wears on.

Upstarts have already shown the demand is there. Dutch Bros, the fast-growing drive-through brand, gets nearly two-thirds of its visits after the morning rush. Those customers tend to skew younger and prefer colorful, highly customizable energy drinks.

Its growth suggests the afternoon isn't inherently weak, just harder to crack. "We've been late to the game on some of these clear places that customers are saying they want to have beverage experiences," Niccol admitted to investors recently.

The risk, as always, is that Starbucks tries to do too much at once. New food items need to be genuinely craveable and high-quality, not stale or overly processed, said food-industry veteran David Ferreira. "The food has to look and taste less industrial and more like something you'd expect in a cafe," he said.

The course correction is already under way, and the company appears to be pulling the right levers. New items the company previewed in its investor day, including Strawberry Matcha Loaves, look appealing and on trend.

Small shifts -- such as removing sugar from its matcha base -- have helped unlock growth in the category. Revenue for tea, which is naturally more afternoon-friendly than hot coffee, has grown roughly 70% since fiscal 2021, the company said.

The lesson is straightforward. While customization adds operational complexity, it is a powerful way to boost growth by letting customers tailor drinks to their individual health goals and taste preferences.

That explains why the company is launching new beverage platforms -- including a new chai recipe and energy drinks made from green coffee extracts. These allow customers to adjust sweetness levels and, in the case of energy drinks, even caffeine intensity.

Starbucks's afternoon business is already big. But, given its growth-stock valuation, bridging the gap between the 8 a.m. latte and the 3 p.m. energy boost isn't just a goal. It's a requirement.

Write to David Wainer at david.wainer@wsj.com

(END) Dow Jones Newswires

February 20, 2026 05:30 ET (10:30 GMT)

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