Did Howard Schultz make a wise course correction on his first day back at Starbucks?

Discussion
Photo: Starbucks
Apr 05, 2022

He’s back. Howard Schultz has started his third turn at leading Starbucks and it didn’t take him long to get the attention of the coffee giant’s stakeholders.

Mr. Schultz, writing a letter to associates that the company shared publicly, said Starbucks was immediately suspending a share buyback program announced just three weeks earlier. Doing so, he wrote, “will allow us to invest more profit into our people and our stores — the only way to create long-term value for all stakeholders.”

Starbucks’ decision to suspend buybacks follows the Biden administration’s budget proposal for fiscal 2023 that seeks to limit corporate executives from personally benefiting financially from the sale of shares in such instances. The proposal, should Congress include it in the budget it passes, would prohibit executives from selling shares in any year that a company announces a buyback.

Investors were not ecstatic about Mr. Schultz’s decision. The company’s stock was down 3.72 percent in premarket trading this morning.

Mr. Schultz’s audience, however, is not comprised solely of those interested in reaping greater shareholder value. He begins his new term as interim CEO knowing that he may not have much time to set the company back on the right track, as he sees it.

That road begins with reconnecting with Starbucks baristas. The chain faces a small but growing push for unionization at its stores. Ten locations to this point have voted in favor of joining Starbucks Workers United, the latest being the chain’s flagship Reserve Roastery in Manhattan. More than 180 of the 9,000-plus Starbucks in the U.S. have filed petitions for union votes.

Mr. Schultz wrote that he will be traveling along with other company leaders in the coming weeks to meet with employees in stores and at manufacturing plants. The purpose, he expressed to them, is “to understand your thinking and ideas about how to build this next Starbucks.”

He also said the company would “engage in design sessions with partners of all levels across the organization to co-create a future of mutual thriving in a multi-stakeholder era. We see these sessions as the deepest form of inventing together we’ve ever attempted as a community.”

DISCUSSION QUESTIONS: Do you agree with Howard Schultz that investing more of Starbucks’ profits into people and stores is “the only way to create long-term value” for the chain? How likely is it that Starbucks will be able to convince most of the stores petitioning union votes to reject Starbucks Workers United?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Sure, short-term investors are upset. Long-term investors should be thrilled."
"It’s all about the store, and the value that associates bring. Kudos to Mr. Schultz — welcome back!"
"I’m with Howard on this one. Over the course of the last couple of years, SBUX employees lost their mojo, mainly due to the amazing volume flowing through every single store."

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33 Comments on "Did Howard Schultz make a wise course correction on his first day back at Starbucks?"


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Mark Ryski
BrainTrust

There’s just something about Mr. Schultz that exudes caring and thoughtful leadership. Immediately suspending share buy-backs to explicitly focus on operations and employees, is exactly the right message. While the unionization push is gaining momentum, Schultz has the credibility, likability and trust to steer the ship back on course. And while there will always be some segment of their employee base that will look to disrupt, I believe that the vast majority of employees can be won back by Schultz. It won’t be easy, but if anyone can do it, it’s Howard Schultz.

Steve Montgomery
BrainTrust

Agreed. A labor attorney told me a long time ago that people don’t vote for a union, they vote against management. An old adage is if you want good people — treat them good. Mr. Schultz’s approach embodies both.

Neil Saunders
BrainTrust

There is nothing wrong with share buybacks, per se. However, they should not be to the detriment of investment in the company. And Starbucks does need to invest. It needs to invest in its people, its stores, its food proposition, its retail offer, and so many other things. It is not performing badly, but there are a massive number of niche coffee brands and chains which are seeing very strong growth. Starbucks needs to keep innovating if it is to stay ahead of this threat.

Gene Detroyer
BrainTrust

A company should execute stock buy-backs only when they have nothing internally to increase the value of the company. Simply, if the internal spending cannot move the company forward, give it to the shareholders.

Bob Phibbs
BrainTrust

Make no mistake, the unionization movement is targeting some of the best retailers like Apple and Starbucks. His job is to stop the unionization of more stores. This is a first step.

Gene Detroyer
BrainTrust

Union power and membership reached a high point in the U.S. during the 1940s and 1950s. The coincides with the greatest growth in the American economy and the smallest measure for income and wealth inequality in over 100 years. As worker power began to wain, inequality grew. From 1978 to 2020, CEO pay based on realized compensation grew by 1,322%, far outstripping S&P stock market growth (817%). In the last three decades, labor wages had NO growth when adjusted for inflation. Is a CEO worth 1,322% more now than he/she was in 1978?

Ryan Mathews
BrainTrust

Gene,

Quick answer? No.

Dr. Stephen Needel
BrainTrust

Too soon to tell whether this a cynical, personal financial move (freedom to sell shares) or he really means it. On the one hand, unions will kill Starbucks. On the other hand, there are a bazillion of them, so if one gets shut down because it went union, there’s a bazillion -1 left. If the pro-union folk think this is going to be a good thing, watch how fast they hit the unemployment line. Starbucks management has been great at sorrowfully pointing out that poor performing stores close.

Doug Garnett
BrainTrust

I welcome the return of Howard Schultz. Starbucks is a subtle operation to run — perhaps exactly because it depends more on the people who work there. Or simply because Schultz has an unusual ability to recognize that and to help those people feel valued — or more valued than they do in so many other companies which treat them like cannon fodder.

All retailers should pay attention — front line employees need respect, not more rules which dehumanize them.

Bob Amster
BrainTrust

I suspect that, Schultz has had the luxury of looking at Starbucks from the outside and to expose himself to more of the daily rhetoric in business. There is a realization in retail that employees are an asset, not a burden, and one takes care of one’s asset. So are stores an asset, and a longe-term asset at that. That is where money and attention should go for the long-term gain.

Gene Detroyer
BrainTrust

Bob, I like your choice of words. For too long, retailers have looked at employees as an expense rather than an ASSET.

Gene Detroyer
BrainTrust

When a company has excess cash, there are only three alternatives to do with that cash: 1. Give it to the shareholders (dividends and stock buybacks), 2. Buy or merge with another company, 3. Invest in plant and people. The best alternative is the one that increases the value of the company. #1 increases the value of the shares. #2 is a fool’s errand. #3 is the future.

“People” have been Shulz’s mantra each time he has led the company. His latest moves do not surprise me at all. I suspect he is leading the company again precisely because of the announcement of the stock buy-back. He would rather see the company invested in the company rather than artificially raising the stock price.

I do not believe that unionization is a big issue with Shultz. He believes that SBX can keep even union workers happy with benefits that don’t exist for most retail companies.

Lisa Goller
BrainTrust

Mr. Schultz is smart to invest in his people, as the employee experience directly affects the customer experience. As the power dynamic shifts in workers’ favor, more companies will prioritize these influential stakeholders.

Starbucks’s success in slowing unionization momentum depends on how soon workers feel heard, understood and valued. What are workers’ core unmet needs? Empathy and conversation will help Starbucks get to the root of workers’ dissatisfaction and start solving it.

Jeff Sward
BrainTrust

Sure, short-term investors are upset. Long-term investors should be thrilled.

Shep Hyken
BrainTrust

I’m excited that Howard Schultz is back. More than ever, companies/brands (from any type of business) need to find the balance between people and profits. Mr. Schultz knows this and is more than capable of finding that balance. If he’s not going to be our US President (at one time there were rumors), I like that he’s using his leadership skills to continue the success of an iconic brand.

DeAnn Campbell
BrainTrust

No one can re-energize a company like the person who started it. Starbucks was one of the first trailblazers to focus on the quality of both the customer and the employee experience, which garnered them tremendous loyalty from both staff and customers alike. In recent years the company’s focus has shifted away from the quality of the experience toward speed and convenience, which is a losing game fraught with high competition and disloyalty.

What originally made Starbucks great was offering that “third place” between home and office. But as work from home has grown — compounded by COVID — the company has gone too far toward “to-go” orders and undermined their in-store environment. Reinvesting in the experience will give housebound remote workers that desperately needed third (and second) place to be, and give employees back their dignity and ability to engage with live customers rather than crank out mobile orders from a computer screen. I for one am relieved to see Howard’s return!

Zel Bianco
BrainTrust

I recently attended the Food Marketing Conference at Western Michigan University and one of the keynote speakers was the CEO of Spartan Nash. He presented a very convincing argument on the importance of a “People First” strategy. The only way to be successful in business, especially now that employees have so many options, is to provide a workplace, whether face-to-face or virtually, is to treat your employees as your most valuable asset and that includes making them more important than even your shareholders.

Mohamed Amer, PhD
BrainTrust

If you believe that customer experience is a significant force in a company’s success, then Howard Schultz did the right thing on his first day back! The heart and mindset of Starbucks have been being the third place: a warm, comfortable, and uplifting feeling experienced in every store. You cannot deliver on that core value without a happy workforce. The baristas are vital to the brand and what Mr. Schultz has done is demonstrate his very public commitment to them and Starbucks’s future.

Gene Detroyer
BrainTrust

Precisly: the heart and mindset of Starbucks have been being a warm, comfortable, and uplifting feeling experienced in every store. You cannot deliver on that core value without a happy workforce.

Paula Rosenblum
BrainTrust

Absolutely the right move.

Compare to Day 1: Amazon warehouse workers form their first union, which they say they had time to do because Bezos was so focused on going to space, Day 2: Amazon announces BILLIONS on more space missions.

Gene Detroyer
BrainTrust

If you were the CEO Andy Jassy and you had the resources and skills to launch a satellite-driven broadband network, would you pass on that opportunity? Amazon is not all about retail. We have seen that each effort can stand on its own. Dollars on one doesn’t mean less dollars for others.

Ryan Mathews
BrainTrust

It is 110% the right decision. While I love the company and the people who work for it, the coffee is terrible and overpriced. So, the real asset isn’t the product, it’s the experience and, in the case of Starbucks, the baristas are about 90% of that experience — positive or negative. As to the unionization issue, I don’t think Schultz, great as he actually is as a leader, can stop that. There are health issues (carpal tunnel) that need to be addressed. His only hope is that he can really hear what employees are saying and correct it before the union gets a firmer toehold.

Lee Peterson
BrainTrust

I’m with Howard on this one. Over the course of the last couple of years, SBUX employees lost their mojo, mainly due to the amazing volume flowing through every single store I’ve been in. They seem tired, burned out, not friendly (not un-friendly either) and overall, just not the same as as just a few years ago. New elements like pick up and go/order ahead seems to have been the final straw that twisted the morale backs of their people. So yeah. People, #1, they need help!

And the reality for SBUX is that their business will always be predominantly store driven, so, like Target, to continuously upgrade and adapt to the latest customer driven convenience is also smart. Like I said, I’m with Howard on this. But for sure, the next “P” has to be product. Still great, but a lot of competition out there now that’s substantial, not from an individual competitor basis, but as a collective.

Brandon Rael
BrainTrust

Howard Schultz’s return is a welcome one for Starbucks, especially that under his leadership, they will be investing significantly into the stores, customer experience, and a renewed focus on the overall product quality. Suspending buybacks may be a temporary solution to free up some working capital for reinvestments. However, the longer-term challenge is defining how the iconic and ubiquitous coffee chain will establish its brand promise of high-quality coffee products, premium food product offerings, and the overall customer experience for mobile and in-store orders.

On the coffee and product front, there are emerging brands offering organic and farm-to-table products that Starbucks will have to consider as they define their strategic path forward. To compete and retain customers, Starbucks will need an innovation-first mind. Still, the most crucial element is the operationalization and execution at the store level, where they are overwhelmed with mobile orders. It will be very interesting to see the short and long-term implications of what Howard Schultz’s return means to Starbucks and its loyal customers.