Starbucks is in a hurry

At a critical moment of life and death, can he turn around Starbucks' fate?

On the last day of July, at the Starbucks headquarters in Seattle, still CEO Lakshman Narasimhan, wearing a baseball jacket with the Starbucks logo, optimistically stated: the company is turning the tide.

But less than two weeks later, Narasimhan himself was shown the door.

On August 13, 2024, Starbucks unexpectedly announced the appointment of Brian Niccol as Chairman and CEO, officially taking over on September 9. Former CFO Rachel Ruggeri will temporarily lead the "caretaker cabinet" and serve as interim CEO until September 9.

"Parachuting" with poor performance

Since 2022, Starbucks' CEO position has changed three times.

From Kevin Johnson to Schultz, from Schultz to Narasimhan, and then from Narasimhan to Niccol... Among these four individuals, only Narasimhan lacks experience in global food and beverage enterprises.

Narasimhan is an outstanding professional manager. During his tenure as CEO of Reckitt, he achieved great success, successfully leading the UK company that produces disinfectants and baby formula through the COVID-19 crisis, with a 11.8% year-on-year sales growth in 2020.

Perhaps it was this track record that led Schultz to spare no expense in hiring him for $190 million and personally training him. Over a period of 6 months, Narasimhan started from a barista, worked at the "drive-thru" window, learned how to make coffee, and fully familiarized himself with the coffee and beverage industry's model and traditions.

In March 2023, Narasimhan officially became the CEO of Starbucks, about 10 days ahead of the original plan. In a letter to Narasimhan, Schultz wrote: "Now, I hand Starbucks over to you, I have the greatest confidence, trust, and love for you."

However, at that time, some already described Schultz's decision as "strange and bizarre".

With the new leader in place, Narasimhan was ambitious. He and Schultz, along with other Starbucks executives, formulated a bold strategic vision, including achieving a 7%-9% growth in same-store sales and a 10%-12% increase in revenue within 3 years. In the most watched overseas market, China, Starbucks planned to open 3,000 new stores within 3 years at a rate of one new store every 9 hours on average.

Initially, Narasimhan began by simplifying the supply chain and operational processes based on feedback collected from grassroots employees during his time at Starbucks stores, aiming to address customer queuing issues and strengthen service quality and efficiency.

At the same time, he streamlined some company functional departments, such as eliminating positions like global marketing executives and assigning these functions to various regions, effectively decentralizing power to make the company more agile and efficient.

Initially, Starbucks investors were optimistic about the new vision. Within six months of Narasimhan joining Starbucks, the company's stock price rose by about 8%. Economic analysts also believed that the company would turn the corner in 2024 after a struggling 2023 However, by 2024, the turnaround did not materialize, and the situation worsened. Customers faced long queues and increased complaints. Like many other catering businesses, Starbucks gradually raised prices to cope with inflation, further reducing customer satisfaction.

50-year-old Andrew, who works in technical sales in Idaho, calls himself a "mocha enthusiast." But this year, he announced that he would no longer drink Starbucks coffee because the price of a mocha coffee has exceeded $6.

For decades, Andrew has been a loyal Starbucks customer, considering a large cup of mocha coffee every day as a "small luxury moment" that allows him to relax during busy work.

However, the latest price adjustment has crossed Andrew's bottom line. "This is the last straw that broke the camel's back, making me completely frustrated with inflation." He first called customer service to complain, then vented on social media.

In the end, Andrew announced that he would choose to brew coffee at home in the future or go to other smaller chain stores with lower prices, no longer choosing Starbucks.

There are many people with similar thoughts to Andrew's.

In the most recent quarter, Starbucks' North American transactions fell by 6%. In the United States, Starbucks' largest and most important market to date, sales at stores open for at least one year fell by 3%, the largest decline outside of the COVID-19 pandemic and economic crisis.

In the Chinese market where Schultz has spent decades cultivating, Starbucks is also facing challenges. In 2023, Luckin Coffee's sales and number of stores surpassed Starbucks, becoming the largest coffee chain in the Chinese market.

In the Chinese market, competition comes not only from coffee companies but also from countless milk tea brands. The new Chinese-style tea brand, King Tea Ji, directly set this year's goal to surpass Starbucks China in sales. Moreover, some companies have even begun to counterattack Starbucks' home ground, including HEYTEA, which has accelerated store openings in the United States.

On April 30th of this year, Starbucks released its second-quarter financial report, with financial indicators falling short of expectations across the board. After the financial report was released, its stock price plummeted by 15.82%, with a market value evaporating by about 115 billion RMB in a single day, marking the largest drop in nearly four years.

Such a predicament obviously disappointed and displeased Schultz. Shortly after Starbucks released its financial report, he wrote on LinkedIn that Starbucks needs to refocus on customer experience and improve its stores based on this. He warned, "This is the main reason for Starbucks' decline in favor."

In the following weeks, Schultz appeared on a podcast show again, talking about Starbucks' crisis. He admitted that during Nalasinhan's tenure, external pressures increased, but all companies faced the same situation. "And Starbucks' performance does not meet my expectations."

Previously confident Starbucks investors are increasingly skeptical that Nalasinhan's initial goals will turn into castles in the air.

Searching for a "savior"

At that time, sensitive listeners left messages below the program: It seems that by 2025, Nalasinhan will have to pack up and leave Insiders familiar with Starbucks have revealed to the media that in recent months, Schultz, who has already announced his retirement, has significantly increased his frequency of "personally taking charge" and has sent emails to the entire executive team multiple times, providing management and business advice.

Recently, his suggestions have become more critical and detailed, covering everything from stock prices to store menus, and marketing activities...

Schultz's actions reflect the internal anxiety at Starbucks regarding the company's development direction and leadership issues, leading to a secret plan for a change in leadership quietly brewing within the Starbucks board of directors.

"For some time, the board has been contemplating the company's development trajectory," said Starbucks board chairman Melody Hobson in a media interview. It was during this process that they found a new candidate - Nicole.

"In the restaurant industry, Nicole may be the most successful CEO at the moment," Hobson revealed to the media. She not only personally flew 25 hours to California to meet with Nicole, but also offered him the positions of CEO and chairman of the board at the same time to demonstrate the utmost sincerity.

Furthermore, Hobson emphasized that the Starbucks board independently completed the entire recruitment process, consulting only a few external advisors. It wasn't until the later stages of the process that the board informed Schultz.

However, insiders familiar with Starbucks believe that Schultz should be fully informed and supportive of this plan.

Nicole is known for his ability to turn things around, having led the Mexican burrito chain Chipotle and the Taco Bell company under the Yum! Brands out of crises in 2018 and 2012, respectively.

During his tenure at Taco Bell, Nicole helped the company launch the Doritos Locos Tacos, which remains a flagship product for Taco Bell to this day. In addition, he led the brand to be the first to launch a mobile ordering app, accelerating the company's online and offline integration.

In early 2018, an E. coli outbreak in Oregon and Washington pointed fingers at Chipotle, linking the epidemic to its chain restaurants, plunging Chipotle into a crisis of reputation and resulting in the closure of more than 40 restaurants in the two states.

Upon joining in a time of crisis, Nicole immediately proposed two strategic points. The first was to retrain restaurant staff on safety and health protocols to the maximum extent to overcome the crisis and stabilize the business; the second was to transform through digital ordering and rebranding.

Under Nicole's reforms, consumers re-recognized Chipotle, and the company successfully launched new products such as carne asada, cauliflower rice, and corn tacos, driving new growth. At the same time, the company shortened the preparation time for guacamole by 50% by introducing automation equipment, and accelerated cooking speed with a robot double-sided grill, reducing operating costs.

In terms of digital transformation, Nicole upgraded Chipotle's digital and mobile ordering platform, making the ordering process on Chipotle more simple and convenient for customers Niccol is also considered a marketing genius. At Chipotle, he named the advertising campaign "For Real," emphasizing the quality of "integrity food" and reshaping Chipotle's brand appeal.

During Niccol's tenure, the number of Chipotle stores increased from 2,400 when he took office to over 3,400, and sales doubled. According to Yahoo Finance data, Chipotle's stock price has soared over 770% since Niccol became CEO.

And these are exactly what the current Starbucks executives are most eager for in terms of transformation.

The capital market also expressed optimism about Niccol with real money. After he announced his new position, Chipotle's stock price fell by over 9%. On the other hand, Starbucks' stock price skyrocketed by 24% that day. Schultz commented on Niccol in Starbucks' press release about the leadership changes:

"I believe he is the leader Starbucks needs at this critical moment in history."

A columnist for Fortune magazine even published an article stating, "Niccol is likely the savior that Starbucks and Schultz have been looking for."

Starbucks' Midlife Crisis

53 years ago, the first Starbucks coffee shop opened its doors.

At that time, it was just a small shop selling coffee beans on a cobblestone street across from Pike Place Market in Seattle. The three founders, Jerry Baldwin, Zev Siegl, and Gordon Bowker, each invested $1,350 and borrowed $5,000 from a bank to open this small shop.

The initial idea of the three founders was simply to introduce authentic Italian coffee beans to the United States, without ever imagining that this small coffee shop would completely change the way Americans and the world view and consume coffee.

The turning point came from a key customer, later widely mistaken as Starbucks' founder, Schultz.

In 1954, Schultz was born into a Jewish immigrant family in a poor neighborhood in Brooklyn, New York. His humble background made him the subject of cold looks in his childhood. In his biography "Pour Your Heart Into It," he recalls that at the age of 7, his father lost his job, his mother was pregnant, and "if it weren't for charity, the family wouldn't even have food to eat."

With no skills and no dreams, Schultz watched his father helplessly lie down and vowed to live a different life. After graduating from college, he held multiple jobs. In 1976, he became a salesperson at Xerox's New York office; in 1979, he became the manager of Hammarplast's U.S. division.

It wasn't until 1981 that his business adventure with Starbucks officially began.

Schultz later recalled multiple times that when he came to this coffee shop and tasted authentic Italian coffee for the first time, "it was so rich that I couldn't help but widen my eyes and hoped that more people could taste this kind of coffee."

It took him a year to convince the three founders to hire him. In 1982, Schultz joined Starbucks Coffee Company in Seattle as the Director of Marketing.

Schultz personally went to Italy to experience and learn about the local coffee culture, and he believed that Starbucks had unlimited potential yet to be developed He proposed: Coffee is not just a beverage, it can also be an experience, a social etiquette, and an important part of people's daily lives.

However, in the eyes of these three founders, Schultz's ideas were too advanced, and the idea of expanding to the entire United States and even globally was too exaggerated.

During this time, Schultz briefly left to develop his own brand. It wasn't until 1987 when Starbucks faced both financial and operational crises that the three founders decided to sell Starbucks, and they found Schultz. "At that moment, I embraced my destiny," Schultz wrote in his biography.

If the three founders are the "fathers of Starbucks," then Schultz is definitely the "soul of Starbucks."

It was Schultz who truly enabled Starbucks to develop, and he initiated the transformation and expansion.

In 1987, Schultz turned the tide and gradually transformed Starbucks from primarily selling coffee beans into a "third space" between work and home.

"If you look at the current situation of the retail and restaurant industry in the United States, you will find that places where people gather have become fragmented," Schultz once wrote in an industry publication, "Apart from home and work, people have nowhere to go. So we created a place where people feel comfortable."

For decades, the concept of Starbucks as a "third space" has become part of its corporate mythology. It offers comfortable seating, jazz music, and fresh aromatic coffee. Baristas also handwrite customers' names on their drink orders.

Michelle Eisen was once a barista at a Starbucks in Buffalo, New York. She remembers that her store was always crowded during holidays, where people gathered with family and friends. She also remembers a special story: helping a customer propose to their partner by writing on a cup, "Will you marry me?"

During Michelle Eisen's time working at Starbucks, close to the turn of the millennium, Starbucks was in the midst of expanding its empire.

In 1992, Starbucks successfully went public on the NASDAQ in New York. In the early stages of going public, Starbucks rapidly opened stores across the United States. Under the "green whirlwind," its revenue and net profit compound growth rates both exceeded 55%.

From fiscal year 1999 to 2007, Starbucks, which had expanded in the domestic U.S. market, began to venture internationally.

In 1999, the first store with the mermaid logo appeared at Beijing's China World Trade Center, not only opening up the coffee market in China but also having a long-term impact on the coffee market in China.

By 2007, Starbucks had a global store count of 15,011, with overseas business revenue accounting for over 10%. However, its rapid expansion collided with the financial tsunami, leading the company to face its first major crisis: in fiscal year 2008, the company's revenue growth rate dropped to 10.3%, and net profit was halved.

During this time, Schultz, who had once planned to retire after achieving success, had to return to Starbucks. He implemented an aggressive "lean plan," closing nearly 1,000 stores and laying off over 10,000 people within two years. At the same time, he encouraged rebuilding relationships with customers and communities, reminding employees that "the cornerstone we value most as a company is our culture and behavior," and further ingrained the concept of the "third space" in the company Under these measures, Starbucks quickly reversed its decline and achieved a substantial net profit growth of 141.8% in 2010, overcoming its operational crisis and embarking on steady growth again. However, by 2017, Starbucks' overall performance began to decline again. The Chinese market, seen as its biggest growth driver, experienced same-store sales decline for the first time in 2018, leading to another downturn and crisis:

Caught between the competition of efficient chain stores and unique boutique shops, as well as changes in consumer environment and habits, Starbucks unavoidably faced diluted value, loss of advantages, brand aging, and crisis.

Schultz's proud concept of the "third place" is now challenged by efficient chain stores and online digitization, reflected in the sharp increase in Starbucks' delivery orders. Out of approximately 9,500 company-operated Starbucks stores in the U.S., mobile apps and drive-thru pickups account for over 70% of Starbucks sales.

Some customers who still seek the "third place" experience complain online about Starbucks removing comfortable chairs and replacing them with hard wooden benches. Machines printing customer names have replaced baristas' handwritten notes on cups.

The brand, once a social currency symbolizing a petite bourgeois style resonance and identity, has lost its appeal in the face of various boutique coffee shops.

In 2022, 69-year-old Schultz returned to save Starbucks in crisis. However, this time, his magic touch seems to have waned, leading to a worsening situation with four CEOs in two and a half years.

Now, Starbucks is about to enter the "Nicole era," and whether he can lead Starbucks to rewrite the Chipotle myth remains to be seen. But one thing is certain, for Starbucks to rejuvenate, it must undergo significant, even disruptive changes.