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Remember when going to Starbucks was a special occasion, and a Starbucks coffee shop was a warm place to relax with friends or a book? Well, that era’s long gone. And now that Starbucks has a new CEO coming, Weekend Brief took a deep dive into what lies ahead for Brian Niccol.
Tempest in a coffee cup
Cycling through orders is not something Starbucks does well these days: Walk into one of the Seattle-based chain’s dark, dreary coffee bars, and it can take far too long to get your double-pump, two-shot, oat milk caramel venti latte. Cycling through CEOs, on the other hand, is something that Starbucks has been doing quite well recently. After less than two years, Laxman Narasimhan, a former head of consumer products firm Reckitt Benckiser, is out. And Brian Niccol, who turned around Mexican-ish quickserve restaurant chain Chipotle after its contaminated food fails, will take over the espresso machine on Sept. 9.
Niccol has a tough job ahead of him. Sales are down. Activist investor Elliott Investment Management wants a quick turnaround in revenue. The company’s large China business is struggling and may need to be sold. And baristas across the country have been unionizing for higher pay and better conditions. Growth was already slowing as the world emerged from the pandemic. But under Narasimhan, same-store sales dropped for the last three quarters, as inflation-pressed consumers proved reluctant to buy $7.45 frappuccinos.
Niccol did turn around Chipotle — its shares surged 770% in the six years he ran the company. If he succeeds at Starbucks, Niccol could make as much as $113 million. His appointment, reportedly at the demand of Elliott, has already singlehandedly reversed Starbucks’ two-year stock slide.
Industry experts and coffee shop owners interviewed by Quartz say there’s one thing Niccol needs to focus on, and only one: the customer experience.
Starbucks has lost “the essence of connection that once defined the brand” under founder and three-time CEO Howard Schultz, said Meredith Vaughan, the CEO of Denver-based ad agency Vladimir Jones and a brand strategist. The rise of online ordering, a focus on drive-thrus over sit-down experiences, and the supersized menu have shifted Starbucks’ brand experience from a communal gathering place that was about more than the contents of the coffee cup to what Vaughan calls “a more transactional, less personal interaction” with the customer.
“When you start a company — or restart one — you have got to be clear on your purpose and your core values, that defines everything: what do you do, and why,” said David Lassman, a professor of organizational management at Carnegie Mellon University in Pittsburgh. “Under Schultz, it was about community and the third place,” that location that’s neither home nor office. “If they want to be the third place, they have to say what does it mean to live as if this is the third place in our community,” added Lassman, who compared Niccol’s task to that of Boeing’s new CEO, Kelly Ortberg.
“When [Schultz] started, it was a hangout, the Cheers of coffee,” the 1980’s sitcom set in a neighborhood bar, said Heather Perry, CEO of KlatchCoffee, a family-owned chain of 10 coffee shops in the Los Angeles area. “When you move to a model of drive-thru and mobile pickup and no human interaction, you’ve definitely lost that feeling.”
“What sells anything is the experience,” Perry added. And that’s what Starbucks has lost, with long lines of customers, underpaid baristas who scramble to fill online orders, and a vanished human touch. “It’s great for me, but I don’t think it’s great for them,” Perry said.
But there is hope, Vaughan said, as old habits recover: “The pandemic has shown us that people are eager to reconnect, presenting an opportunity for Starbucks to reimagine and reinvigorate this foundational aspect of its brand under Brian Niccol’s leadership.”
The shadow of Schultz
Like an over-caffeinated Logan Roy who just won’t let go, Starbucks founder and three-time CEO Howard Shultz will cast a long shadow over Niccol. Schultz picked Niccol’s predecessor Laxman Narasimhan, and had Narasimhan dancing to a tune that Schultz himself wrote. Narasimhan, who’d run consumer goods firm Reckitt Benckiser, was forced to spend half a year traveling the world and donning a green apron to draw lattes and double-pump mochaccinos for customers before he was allowed to call any shots besides espresso. That plan failed, but it should serve as a grim warning to Niccol, said John Rossman, a business adviser, former Amazon executive, and author of the book “Big Bet Leadership.”
“The mistake Narasimhan made, and I have concerns that Brian Niccol is already making it, is he took Howard Schultz’s plan and he ran with it,” Rossman said in an interview. “Niccol has to tear up that plan and say, ‘this is a reset.’” Niccol needs to tell Schultz, the board, and the activist shareholders that a turnaround will take time, Rossman added.
“The major thing is to just dial back on efficiency. That would improve the customer experience and the employee experience,” Rossman said. Starbucks’ thousands of possible combinations of coffees, syrups, milks, and foam styles, and the push for app-ordered takeout coffees, have changed the company’s value proposition. “It used to be they’d have your name on a cup,” noted Rossman (even if it was misspelled). “Now you’re just a bar code.”
To get there, he said, Niccol should define “what sucks” at Starbucks. “If you can focus on the critical challenge in the business, which all the little things add up to, you have a chance to get to the root cause of the problem, and then develop a strategy to fix it,” Rossman said.
Niccol needs to set some ground rules in discussions with Schultz, and then manage that relationship carefully, said Lassman, the Carnegie Mellon professor. On the agenda: How they will communicate and how often, which issues Schultz will be involved in and why, and how they will communicate externally. “Niccol needs to have an open dialog with Schultz and reach agreement on these issues,” Lassman said. “Schultz has a fair amount of power and he is not going away — nor should he go away.”
Schultz has made it clear he won’t let go of his backseat driving anytime soon. Shortly before Narasimhan was fired, Schultz, 71 years old and the company’s eighth-largest shareholder, was letting off steam at the then-CEO. “I think we’re not at our best right now,” Schultz told the Acquired podcast in June. “I’m not a messiah, but I have an instinct about the company, and I know the inner workings of the company better than anyone else.”
And about that jet...
Call it the ultimate WFH job. When Niccol signed on to Starbucks, he was living in Newport Beach, California, and was reluctant to move. As part of his $113 million pay package, Starbucks agreed to let him work from home, where it will furnish him with a home office and a Newport Beach-based assistant — and most importantly, the use of a corporate jet to fly to Seattle every week for the company’s obligatory three days in the office. The jet commute provoked an immediate roar of outrage from environmentalists and corporate watchers who said the carbon-intensive flights undermine Starbucks’ carefully tended green image. The company recently cut the amount of plastic in its cups and is moving to compostable paper straws from plastic. It has even set a target date of 2030 to cut its carbon emissions, waste, and water use by half (it conceded that its carbon footprint grew by 8% last year)
But the real problem with Niccol’s work-from-home is its effect on corporate culture. To make any changes in Starbucks’ sprawling empire — the chain has 38,000 coffee shops around the world — Niccol will need to win the trust of everyone from his fellow C-suite holders at Seattle headquarters to baristas in cities across the U.S.
“He should be out visiting stores, and be accessible in the main office,” Lassman said. “He has to integrate into the culture and learn how people do things to inspire them to work together with [him].”
Rossman said one of Niccol’s first challenges will be to wrest control from the (coffee) bean counters who have pursued the short-term returns strategy that finally ran out of steam. “He really needs to create a sense of urgency within corporate to fix this, and the issue is that he’s not in the office five days a week,” Rossman said. Mandating a five-day in-office work week, and following it himself, might start a revolt, Rossman said, “But it would be a healthy revolt. It would create a sense of urgency and buy-in.”
In fact, this management style has a name, Lassman said: management by loitering.
“Some CEOs like to loiter,” he said. “Be out there, be accessible and hear people. Don’t be so much the savior, be the listener. Listen to what people have to say: He really has to spend a lot of time talking with customers and talking with employees.”
Enjoy your Labor Day weekend, and order yourself a nice iced cappuccino. But go easy on the barista, and leave out the triple-pump, extra-shot pecan milk.
—Peter Green, Weekend Brief writer.