Photo by Athar Khan on Unsplash
August 13, 2024
Will the New Starbucks CEO Improve the Coffee Retailer’s Performance?
Starbucks has appointed Brian Niccol as its new chairman and chief executive officer, effective Sept. 9, 2024. Niccol, who is currently the CEO of Chipotle, will replace Laxman Narasimhan, who is stepping down immediately. During his time at Chipotle, Niccol was credited with nearly doubling the company’s revenue and significantly boosting its stock price. In the interim, Starbucks Chief Financial Officer Rachel Ruggeri will serve as acting CEO until Niccol officially takes over.
This follows the company’s disappointing financial reports for the third quarter.
Mellody Hobson, the current board chair, will move into the role of lead independent director. The announcement has had a notable impact on the stock market, with Starbucks shares surging by 24%, a record one-day jump, while Chipotle’s stock dropped by 7.5% as of market close on Tuesday, according to Reuters. This change in leadership is seen as part of Starbucks’ strategy to rejuvenate its brand and improve operational efficiencies. Former CEO Howard Schultz has expressed strong support for Niccol, citing his ability to restore trust, fix operations, enhance customer experience, and create shareholder value.
The transition comes amid criticism of Narasimhan’s leadership, particularly regarding operational issues and challenges related to Starbucks’ mobile ordering system. Schultz previously voiced dissatisfaction with Narasimhan’s management, which may have contributed to the board’s decision to seek new leadership. Starbucks began discussions about a leadership change approximately two months ago, and Hobson indicated that Niccol was the preferred choice after a thorough review process.
Under the previous CEO, the coffee retailer made multiple attempts to improve declining performance.
In May, Starbucks encountered its first quarterly sales decline since 2020, with a 2% drop in global revenue and reduced same-store sales in the U.S. and China. Then-CEO Narasimhan recognized the issues, including heightened competition and shifting consumer habits, and proposed several strategies to reverse the decline. These include enhancing the Starbucks app, improving service speed, extending operating hours, and experimenting with new menu items like tapioca-style pearls. The company also invested in store efficiency and expanded digital marketing to attract occasional customers.
At the time, former CEO Schultz posted on LinkedIn and stated that Starbucks’ U.S. operations are the “primary reason for the company’s fall from grace.” To improve, he recommended focusing on coffee quality and enhancing the customer experience in stores. He also emphasized the need to innovate Starbucks’ mobile ordering and payment systems.
Another strategy Starbucks tried is introducing a “pairings menu,” offering breakfast items with a tall hot or iced coffee or tea for $5 to $6 at participating locations. This promotion aimed to address rising food costs and declining sales by providing a more affordable breakfast option.
Moreover, Elliott Investment Management recently acquired a significant stake in Starbucks, aiming to address the company’s recent struggles, including a 35% drop in share price since July 2021.
Now the question remains if Niccol will be able to turn things around for Starbucks.
During his tenure at Chipotle, the company’s stock price surged by approximately 800% since he assumed leadership in early 2018. This impressive growth is largely attributed to Niccol’s emphasis on increasing drive-thru locations and enhancing the company’s loyalty program, according to The New York Times.
Additionally, CNBC noted that a key driver of Chipotle’s success under Niccol has been its app. Conversely, Starbucks’ app has faced criticism for playing a role in the company’s weaker results. Schultz and other critics have pointed to the increase in mobile orders as a cause of service delays, ultimately harming the customer experience.
Niccol is also recognized for revitalizing Taco Bell during his time as CEO before taking his spot at Chipotle and replacing founder Steve Ells. One of his initial challenges as CEO was guiding the chain through a foodborne illness crisis, which he addressed by implementing nationwide retraining for all employees, as reported by USA Today.
Finally, Reuters noted that before joining Yum! Brands in 2015, Niccol “spent 10 years at consumer goods giant Procter & Gamble. Currently, he is on the board of big-box retailer Walmart and has previously served on the boards of homebuilder KB Home and bike maker Harley-Davidson.”
In a statement to the Wall Street Journal, Schultz voiced confidence in Niccol as Starbucks’ new CEO. “This is the solution I had hoped for,” he said. “He has my respect and full support.”
Discussion Questions
What key strategies might Niccol introduce to address Starbucks’ recent sales decline and operational issues?
How might Starbucks’ efforts to improve its mobile ordering system and launch promotions like the “pairings menu” impact customer loyalty and financial performance in the near and long term?
Given Elliott Investment Management’s significant stake in Starbucks, how could its involvement affect the company’s strategy to rejuvenate its brand and address its financial challenges?
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A change of leadership does not automatically correct issues. However, Laxman Narasimhan was not moving the dial and was losing the confidence of investors. Under his tenure, Starbucks has been on the back foot and has lost sight of the basics. Brian Niccol has a more instinctive understanding of foodservice and should be able to instill more operational discipline. Even so, given the scale of the challenges it would be unreasonable to expect him to yield immediate results.
Certainly, it was time to change. Whether the new CEO cracks the code will depend, though, on whether he understands the core complexity of Starbucks business in the ways Howard Schultz did. At this point, there have been no CEOs able to capture that vision. Instead, each CEO not Howard Schultz has endorsed, from what I can see, a type of creeping managerialism — removing from stores and employees the joy of coffee and the tremendous value customers get from Starbucks.
I wish him well — but suggest he forget any business school trainings he has and seek to do what wasn’t required at Chipotle. He needs to comprehend the unusually tight linkage between coffee and customers and the need for the store help to be freed from management dictatorship to do what’s right in the store.
Too many stores. The thrill is gone. And the problem is that absent chapter 11 (which no one wants) they will have to wait for the leases to be up.
If Starbucks wants to return to its roots, it’s gonna take some time. Otherwise, it’s McCafe on steroids
And the prices are too high, still.
This and what Paula said. Menu is too complicated, the value proposition realization was too late, and it wants to be all things to all people. Eventually, everyone gets tired from company to its employees and finally the customers. And really, think about work flow- it just doesn’t make sense.
YES! Reminds me of B.B. King’s classic “the thrill is gone.” Can Starbucks recapture that thrill?
In just four years, Brian Niccol will become Starbucks’ fourth CEO. In addition to his background in consumer goods, he also has a strong background in fast food, including Chipotle, where he took over right after the E. coli nightmare.
Niccol’s leadership style is more aggressive and innovative compared to his predecessors. While previous CEOs emphasized steady growth, Niccol’s experience suggests he will prioritize efficiency and cutting-edge customer experiences. This shift could bring new growth and challenges for the company.
In addition to his experience at Taco Bell and Procter & Gamble, Niccol is also a member of the Walmart board of directors. During Niccol’s tenure at Chipotle, the company enjoyed a period of rapid growth and a rise in stock price.
Niccol might face resistance from employees who are not used to his type of leadership style. Balancing rapid growth with maintaining Starbucks’ brand identity and customer loyalty will be another significant challenge.
Because Niccol is a culture-change enthusiast, he might make a good fit for Starbucks, since Starbucks no longer has the amazing culture it once did.
Niccol’s leadership style, characterized by its aggressive and innovative approach, could inject a new level of dynamism into Starbucks’ culture. By prioritizing efficiency and cutting-edge customer experiences, he might drive the company towards a more forward-thinking and competitive environment. This shift could revitalize employee engagement, foster a culture of continuous improvement, and potentially attract a new wave of customers.
Under Narasimhan, the outgoing CEO, Starbucks appeared to be lost in a fog. As a result, Starbucks lost its aroma, their focus shifted from lattes and espressos to cold drinks, mediocre foods in small sizes, and they no longer carried the premium category of scones and other delicious pastries. Currently, the pastries are not any better than Duncan’s, but they are much more expensive.
Niccol’s approach differs from Narasimhan’s in several key ways. While Narasimhan seemed to steer the company towards a broader but less distinctive menu, Niccol is likely to focus on streamlining offerings and emphasizing premium, innovative products. This strategy could help restore Starbucks’ reputation for high-quality beverages and pastries, bringing back the brand’s unique charm and appeal.
While Narasimhan’s broader menu approach left some customers feeling that Starbucks had lost its unique identity, Niccol’s focus on premium, innovative products could reignite customer enthusiasm. Under Narasimhan, the shift towards cold drinks and mediocre food offerings led to mixed reviews and a sense of disappointment among loyal patrons. In contrast, Niccol’s streamlined and quality-focused strategy may attract both long-time fans and new customers seeking a more distinctive and high-end coffee experience.
Despite its good intentions, the app has caused more harm than good, often resulting in malfunctions and unreliable performance.
To improve the app’s performance, Starbucks could invest in a thorough overhaul of its software infrastructure, ensuring better compatibility and smoother operation across various devices.
Additionally, gathering customer feedback and conducting regular updates based on user experiences could help address any recurring issues. Implementing more robust testing phases before updates are released would also ensure that new features and fixes do not introduce new problems.
These technical issues have led to significant frustration among customers, diminishing their overall experience and satisfaction. Frequent malfunctions and unreliable performance have caused delays in orders and inconsistencies in service, eroding trust in the brand. Addressing these app-related challenges will be crucial for restoring customer confidence and ensuring a seamless, enjoyable experience at Starbucks.
It appears that Starbucks has a much higher turnover of in-store personnel than in the past, and union employees are more concerned with politics than with loyalty and personality.
The high turnover rate at Starbucks can be attributed to several factors. Increased workload and pressure due to understaffing have left many employees feeling overworked and undervalued. Additionally, the lack of competitive wages and benefits compared to industry standards has driven many to seek employment elsewhere, contributing to the ongoing retention challenges.
There is no longer a Howard Schultz culture. By the way, if you have not read his book, I highly recommend it. It is even more important that current management reads this book. Maybe that will be helpful.
There is no doubt that the economy, inflation, and prices are contributing factors to the decline of businesses at present. However, the economy was even worse in 2008 and beyond, prices were high, and Starbucks was booming.
One key difference in management strategies between the current leadership and the era of Howard Schultz is the focus on employee engagement and company culture. Schultz emphasized creating a supportive and inclusive work environment, which helped foster loyalty and reduce turnover.
In contrast, today’s management appears to be more focused on operational efficiency and cost-cutting measures, often at the expense of employee satisfaction and morale. This shift in priorities may be undermining the sense of community and commitment that once defined the Starbucks experience.
Narasimhan announced one day that Starbucks would expand stores and make them more accessible to people with disabilities. The next day, Starbucks would have mainly drive-thru stores, and the day after that, Starbucks would move more into the food sector.
Since Niccol has a strong background in consumer goods, including P&G, I do not doubt that Starbucks will improve and advance its retail products business, both separate from and within its coffee shops.
In order for this new CEO to be successful, he must sit down with Howard Schultz and determine how to transform Starbucks back into the beloved brand and aroma that we all knew and loved. Db
Starbucks is in the business of selling an elevated experience at an elevated price point…at least that used to be the goal. Chipotle is essentially holding the same brand position in a different market segment, making Mr. Niccol an especially good fit.
Niccol’s strength lies in driving brand transformation through digital innovation and operational excellence, proven by his success at Chipotle and Taco Bell. At Starbucks, he’s likely to focus on revitalizing mobile ordering, enhancing customer experience, and streamlining operations. Improving mobile ordering and launching the “pairings menu” could quickly boost customer convenience and loyalty, leading to stronger long-term sales and financial performance.
Additionally, Elliott Investment Management’s significant stake could accelerate these shifts, pushing for financial discipline and operational improvements, ensuring Starbucks’ brand rejuvenation aligns with shareholder interests and drives lasting value.
What is Schultz, anyway, the Coffee Whisperer? I recall reading a story recently that speculated his (never quite) disappearing act is part of Starbuck’s problems, and while I don’t know enough about their inner workings to affirm that viewpoint, reading this story it’s hard not to wonder if he doesn’t have an (unhealthy) oversized influence.
Wall Street rewards performance winners and punishes losers. Incoming CEO Brian Niccol brings a strong, proven, and much more relevant track record to Starbucks, which needs to rebuild its global reputation and restate what the brand stands for.
Much has been written on needed operational improvements, app and technology fixes, menu adjustments, and refocusing on quality to recapture the brand’s defining upscale proposition to core coffee drinkers. However, Mr. Niccol’s biggest challenge will be turning Starbucks’ culture and global reputation around. The effects of ongoing union issues, past tax avoidance schemes, and market saturation strategies will remain with a new CEO. However, he will have the opportunity to establish a new and constructive discourse.
In 1989, sociologist Ray Oldenburg coined the term “third place” to describe a place other than home or work for people to gather and relax. How will the new CEO guide the company in reimagining the Third Place that Starbucks had once earned and held so dearly?
The Third Place…!!! I don’t recall any other fast food business being given than moniker. Not McDonald’s, not Dunkin’ Donuts, not Chipotle. So that moniker sounds like bedrock stuff to the Starbucks brand promise. And their success as a Third Place has morphed into what I will call being viewed as an “instead of” place. Instead of working at home or the office, I’ll go hang out at Starbucks for a couple of hours…with my computer. So instead of 20-30 minutes for a coffee and a snack, it’s a couple of hours of lounging…er, working. That had to have changed the customer experience, along with expensive coffee and odd snacks. I don’t think this is so much a return to the roots scenario as it is evolving to understand the different expectations for different kinds of customer experience.
It’s never a good sign when there are rapid CEO changes.
Starbucks announced this morning that it’s replacing CEO Laxman Narasimhan with Chipotle Mexican Grill CEO Brian Niccol.
The iconic and omnipresent Starbucks brand that Howard Schultz and his team built has lost its luster and brand equity over the past ten years. Consider that their original vision statement for the brand was to “Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow,” and the updated version is “With every cup, with every conversation, with every community – we nurture the limitless possibilities of human connection.”
However, Starbucks is clearly struggling. With economies of scale comes efficiencies and reach. Yet the brand has strayed from its successful strategy of offering customers transporting European cafe experiences and, in the process, has essentially commoditized itself.
A rapid leadership change with a CEO, Brian Niccol, who, in full transparency, did not have a successful run, is a concerning development for Starbucks shareholders and fans. These sobering facts speak to the challenges the coffee giant is facing:
The evolution and devaluation of the Starbucks brand and experience have been disappointing developments. Especially those loyal consumers who discovered the brand back in the day and have seen the experience deteriorate and commoditize itself. It will be interesting to see how this plays out.
However, considering the new CEO’s track record, I have my doubts. Will there be a rush to cut costs and rationalize stores, and are layoffs a possibility to help return the company to profitability?
The change in a CEO doesn’t change what’s happening in the stores until action is taken. That action is to go back to what “got them to the dance.” First, what brought Starbucks its former reputation? How far have they strayed from there? The original Starbucks values have been compromised. To rebuild the brand’s reputation, go back to the reasons Starbucks because an incredible success and rebuild from there.
100%. Every new leader must evaluate, show reverence and respect for what built the brand. Doesn’t mean they keep it all. But employees and customers created and embraced Starbucks for all kinds of reasons, becoming a powerhouse. Otherwise by now we’d all be buying coffee from McDonald’s every morning.
Too many posters here expect Starbucks to “return.” Nothing is returning. It is a different market and the challenges of a popular app, tiktokers encouraging followers to come up with the oddest complicated drinks, and a reduction in people designing to consider working there are very hard to ignore. That said, I’m excited by the new CEO – he’s an OPS guy and will understand the lack of cleanliness in particular has gotten out of hand. Closer earlier if you must be get the stores clean. They are working on how to streamline operations with input from employees but I wouldn’t wish changing 5000 stores on anyone.
It is my opinion that Brian Niccol’s past success will spark renewed vigor for Starbucks. However, the brand and its inherent strength has certainly wavered and revitalization is not going to be easy. Three elements should be considered part of this renewal strategy: 1) Customer loyalty – what does it mean to return to being a Starbucks faithful; 2) Menu refresh – the coffee market has become saturated with competitors and options. Starbucks needs to stand out. 3) Digital innovation – not a lackluster app, but a truly engaging “lifestyle” app that customers will be excited to engage with.
Starbucks lost its way. It is no longer “the Third Place,” and its operations became so complex that they could not execute well.
The latter is fixable—Mr. Niccol has the experience to fix it—but recapturing the “Third Place” experience is nearly impossible. Today, Starbucks is just another coffee place. And unlike many coffee places, the crew doesn’t know the customers’ names.
There’s no doubt that pressure from activist investors is part of the reason why a change was made. However, the fact is, the business outcomes were challenged and the changes that Mr. Narasimhan was making were simply too little to late. Despite it’s challenges, Starbucks remains one of the leading consumer brands and there’s plenty to build on to get results back to expectations. Recruiting Mr. Niccol who has the track record and operational background in the industry was a brilliant move. The positive reaction by Wall Street and pop in stock price will give Niccol some breathing room, but the honeymoon won’t last and stakeholders will want to see better business outcomes.
Stop burning the coffee. It was never great and it still isn’t. Bring back all the comfy sofas and arm chairs to all the locations. Lower the prices so that most humans can afford to buy an espresso (which is the only coffee I would ever buy there).
Mr. Niccol’s background and experience is a big plus for Starbucks. Clearly, the analysts in the foodservice industry intimately understand his talents and have instantly rewarded the company with a significant boost in stock price. That said, Starbucks is like a battleship given its scale, and it will take a while to turn the enterprise. But Mr. Niccol will turn it. I suggest that he maniacally focus on two things: 1) drive-thru execution (which includes mobile app) and 2) price points – give consumers value; bring price points back down from the stratosphere.
Starbucks’s success is a significant contributor to their current struggles. The operational challenges in creating a branded, consistent customer experience across an enterprise their size is massive. Mr. Niccol has his work cut out to restore the coffee shop magic they once enjoyed. Hopefully, he can bring innovation. THe menu at Starbucks has gotton confusing, they seem to have lost foucs on the core coffee lover, who appreicate the great stories that a globally sourced product like coffee has to offer. The food offerings need to be updated, the pastries for example, wrapped in plastic wrap don’t hold up well to the competition. Starbucks also has labor issues as more stores unionize. Mr. Niccol has dealt with this at Chipotle, and I’ll be interested to see how he handles these issues here.
I do think Mr. Niccol is a good choice for Starbucks. He has deep experience in all of these areas. That said the company needs stability and focus. Hopefully Mr. Niccol will be able to bring these attributes to this role and generate excitement.
Kyla Scanlon has a pretty good take on the slide of Starbucks… that they lost their hold on being the “Third Place” for people alongside home and work. And you sense this if and when you go into a Starbucks to place an order… you get treated as a third rate customer behind drive-thru and mobile orders. Maybe there is something to that. Is Starbucks trying to be like emergent competitors Dutch Brothers and just crank everyone through a drive-thru or pick-up window and leave the quality of the in-store experience behind? Is there still a need for a “third place” in this world? https://www.instagram.com/kylascan/reel/C-oBo_FSB_3/
My local Starbucks has a chalkboard that reads in part that the mission of this particular shop was to make sure everyone felt welcome, with no harmful language, love for all, etc. etc. and so on. NOTHING about serving excellent coffee. This, to me signifies much of what ails SB’s…seemingly no focus on the product, no focus on the customer experience, no focus on value for money..nope, the focus here is on making sure there are syringe dispensers in all bathrooms (there are) and change the bathroom signs to read “All Gender Restroom” (they have).
I trust the new CEO will focus on the basics and build from there. I am eager to watch it happen.
Your politics is showing, not theirs.
Direct answer re: CEO is: NO. A CEO does not change the performance. The CEO can lead, inspire and certainly work with the Board to gain approval for new initiatives. Think back to a time where SBX added food choices, then depending on location and securing licenses wine and beer to extend daypart attraction. I think back to the SBX environment where music was featured, and the cool vibe was present at the corner coffee shop. The chain is part of the community or central to the clientele adjacent to office space, airport, etc. On a personal note, SBX is never going to get the bulk of my business because I prefer Peet’s roast. In addition, I’m not addicted to their sugar laden drinks – this is where their innovation has been applied and the craving for more yields both frequency to boost energy and provide a nice break from your desk. Convert locations to new concepts? Improve the overall value from the rewards program? Adjust the roast so your coffee doesn’t always taste burnt? Add a new/fresh food partner to stores that have the square footage to drive daypart attraction – why don’t they have desserts – movie or date night stop at SBX? Lots of opportunity…but the CEO is not the one developing it – let alone on a global basis, coupled with heavy reliance on affiliate partners who operate the stores – will they adapt initiatives based on cultural differences?
Brian Niccol has his hands full but understands foodservice and leading thousands of locations in one direction. He’ll need to immediately build trust among associates while motivating them to improve service levels. Teams have been through significant directional change recently.
Starbucks must next create brand experiences which better resonate and satisfy customers depending on how they interact. This means recreating locations trying to do too many things. Some locations should fully focus on speed and high volume, operating at the highest level for customers a hurry. Other locations can orient more toward a better overall experience, fully steeped in Starbucks 3rd place culture. Some locations may still offer all of the above, but this requires re-thinking and re-building customer CX pathing at store level and with the mobile app.
The pandemic was the undoing of Starbucks in several ways.
It destroyed Starbucks as the 3rd place. Once locked down, coffee drinkers invested in fancy coffee machines. They realized they could make an impressive cup of coffee at home for less.
The other undoing is home offices and work from home becoming more common. This eliminated a lot of Starbucks commuter customers.
Then there’s the price and less than spectacular in store experience.
Good CEO choice. Lots of challenges that will be difficult to overcome.
Starbucks has lost its cool factor, becoming seen as too expensive and complicated compared to newer, trendier coffee shops (change in consumer appeal). Under the previous CEO, Laxman Narasimhan, the company struggled to keep up with the competition and failed to increase shareholder value. So it will be interesting to see with Brian taking over, who has extensive experience in fast food, how he will revatilise the brand. A big job is required.
One thing I haven’t seen mentioned yet is Brian Niccol’s leadership in capturing the attention and wallets of Gen Z consumers. This younger cohort is enthusiastic about and loyal to Chipotle, influenced by digital product discovery and influencers on TikTok. Staying agile amid shifting consumer values and needs across generations can help Niccol lead Starbucks back to its core brand essence and relevance.