Starbucks opened a net 526 new stores in its last fiscal quarter.
Starbucks is undergoing a fresh start, and the impact will be felt throughout the company, from on-site baristas to the company’s suppliers.
The appointment of Brian NiccolCEO of Chipotle Mexican Grill, is set to replace Laxman Narasimhan as CEO. This is the first step and sends a clear signal that proven leadership with operational experience is needed if the iconic brand is to be revived.
A major problem under Narasimhan was a loss of trust in leadership. He was an outsider with no experience in the restaurant industry – all of Starbucks’ cultural changes and employee benefits were made under former CEO Howard Schultz. But new CEO Brian Niccol has a similar mindset. He actually took a page from Schultz and brought it to Chipotle.
Going forward, the change is going back to Schultz’s roots and looking at operational problems from an experience perspective. There are a lot of operational problems that need to be fixed and that the chain is trying to solve. But under the outgoing CEO, they were stuck in a more theoretical mindset about how to fix things. Starbucks will benefit from greater practical knowledge, both in the back office and at corporate level in the areas of development, innovation and marketing.
Here is my opinion on the corrections that need to be made.
•The main problem is economic. Starbucks faces the same consumer challenge as everyone else right now, which is value. U.S. consumers are worried about their wallets, which is holding back Starbucks’ performance here. And while management is trying to get things right, they are still dealing with a consumer sentiment that is really pushing for value. That’s a challenge both inside and outside the company. Some of the recent promotions have provided some momentum, but that hasn’t really lasted.
• Starbucks abroad. Starbucks needs to rethink its entire business model internationally, even as it tries to keep up with the expansion plans that Howard Schultz has put in place, that is, doubling the number of stores. But in China, the company is struggling. While it is trying to expand its presence there, local competition has doubled in size.
•Culture issues meet inflation. Starbucks is currently battling multiple challenges including union issues, technology, menu, pricing, operations, promotions, and sky-high commodity inflation in ingredients like cocoa and cinnamon. And the company never really had the union issues before. Starbucks was a company that offered benefits to its frontline workers that the industry never even thought about, let alone provided. So some of the culture issues started to emerge when Howard Schultz resigned. At the same time, prices were rising, and while everyone rode the wave of post-Covid consumerism, that benefit is now gone.
•The focus must be on value. As with discretionary consumer purchases, it is the same with out-of-home groceries: consumers are looking for value. While this has always been true for lower-income consumers, it is now true across all income levels, especially as credit card debt explodes and balances are maxed out. So the solution starts with value, value, value.
• Starbucks needs to innovate and simplify its menu. In the long term, it needs to address its main menu. Menu innovation is very important, especially with limited-time offers, but Starbucks needs to reduce the complexity somewhat. Also, the frequent addition of new drinks has led to complexity fatigue. The complexity of the menu led to wait times, either because the store was understaffed or because the staff were not properly trained. While the level of complexity needs to be reduced, this also needs to be done at the level of staff training, given the longevity and loyalty of Starbucks staff. And special offers for their loyal customers need to be refreshed so they continue to come back as often as they have been.
• Re-motivate store associates by revamping their benefits packages or other incentives. Howard Schultz, for example, placed a high value on education, but now it may be time to review healthcare or take a closer look at daycare, which is a major problem for the industry’s retention and ability to keep the workforce happy. To restore that motivation, the company needs to address a number of things with its workforce. Store associates are what make the customer feel valued, and that will restore the store culture. Innovation will follow from there.
•Customer experience and technology are closely linked. Wait times need to be reduced and the customer experience improved – the customer experience suffers greatly when Starbucks’ technology fails. This is an area that still needs work. Starbucks has made incredible progress with its technology but needs to communicate this better to its loyal customers through the app. One of the reasons the promotions have not worked is because they are communicating to the wrong customers through the app. This is another area that needs special attention. The temporary promotions did not resonate with their regular customers and did not attract enough new customers.
•Decomplexity in the supply chain. The complexity of the business impacts the supply chain, whether through ingredients or supplier relationships. Many of these relationships are currently very strained and also need to be simplified.
