Can Starbucks Be Great Again?

Sometime in the past few years, Starbucks Corp. (NASDAQ: SBUX) became a slightly higher tier fast-food retailer than McDonald’s. People stood in long lines or ordered their food and coffee with an app. Waiting times were long, the food mundane and workers often were unhappy.

The Starbucks board fired CEO Kevin Johnson in March and blamed him for almost all the company’s problems. The board brought back serial Starbucks CEO Howard Schultz, who has the title of “interim.” Unlike most CEOs with this designation, he began a major overhaul of the company. That does not leave new chief executive Laxman Narasimhan much to do, strategically, when he takes over. Narasimhan has been handed a roadmap he is not supposed to deviate from.

The Starbucks board had a reasonable concern about Johnson. Its stock traded at $125 in July 2021. It dropped to $90 in early 2022. Under Schulz, it has not recovered much. It trades near $91 now, which means he has only treaded water.

Schultz made an odd decision. He has fought to keep unions out of the company, which has angered a number of workers. Employee churn was high and continues to be. That means a high level of employee performance is hard to keep in place as a part of the workforce remains dissatisfied.

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Schultz also has plans to mechanize how Starbucks drinks are produced, which puts less strain on front-line employees and speeds service. Along with these “improvements,” Starbucks plans to add 2,000 new stores in the United States and has a goal of 45,000 worldwide less than three years from now.

Starbucks also raised its financial goals considerably. Same-store sales are expected to grow at 7% to 9% over the next three years. The company will invest almost $500 million in-store improvements.

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So, what is Narasimhan left with? Employee churn will not drop, at least not immediately. Starbucks workers will continue to unionize, which will put pressure on margins and potentially harm customer service. And there is a recession coming that could dent predicted sales improvement. If he deviates from the new roadmap, Schultz will not be pleased.

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