A Starbucks Comeback

Hi everyone, and welcome back to the interview and analysis section. After some time away to think about which topics to tackle next, I’ve understood that I want to dive deeper into the relationship between business and food, whether it is understanding how the price of avocado affects grocery store margins or clarifying the moves of fast food giants. So, if you’re interested, welcome aboard!

Anyway, this week I’ve been particularly keen to delve into how Starbucks will be managing its operational and financial struggles, as a new CEO takes the helm of the world’s largest coffee chain. Let’s dig in.

It’s safe to say that Starbucks has reliably delivered for many years. From shareholder returns to innovative sweet drinks, the company has dominated the coffee market for years.

But, in the wake of a Middle Eastern crisis and a rocky relationship with labour unions, the largest coffee chain in the world has seemingly been struggling to keep up with both competitors and the changing tastes of its customers. And now that leadership has changed hands, I wonder what’s next?

What happened?

Over the past five years, Starbucks shares have increased a meagre 2% in comparison to the S&P 500 stock index, which has gained around 82%. The explanation for this, as always, is multifaceted.

Firstly, Starbucks, along with other famous food brands like Burger King and McDonald’s, is still suffering from a customer boycott after some accused the chain of aligning itself with the Israeli cause amidst the Israel-Palestine conflict. And despite Starbucks executives having repeatedly denied allegiance to any side, that hasn’t helped.

Secondly, the coffee giant has found it rather difficult to negotiate with disappointed unionised employees. An increasing number of stores across the US are unionising, demanding better pay and more flexible working schedules, with a settlement between labour unions and Starbucks nowhere near in sight.

Finally, and potentially most pressing, it seems as though Starbucks has lost its ability to consistently deliver value. A seemingly infinite number of drinks customisation options, coupled with the increased popularity of coffee ordering through the mobile app, has meant that Starbucks simply cannot cope with the number of orders while maintaining the speed and quality of service, for which it was once famous. The expense of a Starbucks coffee is just not worth it anymore.

It’s no surprise, then, that Starbucks has been steadily losing its market value for many months, as it struggles to maintain its core identity while also appealing to a growing audience for coffee. 

The new boss

Earlier last month, Brian Niccol (pictured below) was introduced as Starbucks’ new superstar CEO and was advertised as the man who would turn the ship around. Indeed, Starbucks shares rose 20% as soon as he was appointed.

Before assuming the throne of Starbucks’ highest office, Niccol proved himself extremely capable as the Chief Executive of Chipotle, re-organising the company after a series of food-safety scares.

He ensured better food-safety measures and was very early in offering delivery through DoorDash and other delivery apps. Chipotle’s shares now trade at almost five times the price when he started the job.

What’s the plan?

With a superstar CEO now in place and a clear direction in which to move, the question now is: what’s first on the list?

As a priority, Niccol is set on improving the company’s operations, making sure that Starbucks cafes become more welcoming and are able to handle a huge number of customisable orders, whether it is through investing in new tech or making “sitting in” more appealing.

Personally, I feel like Starbucks is in need of an update. Howard Schultz, the chain’s founder and ex-CEO, created the company so that customers could have “a home away from home”. And, for a long time, it hasn’t been that for customers.

The coffee is better elsewhere, the atmosphere is cosier in independent cafes, and people are tired of waiting for your misspelled name to be called out thirty minutes after you’ve ordered. People want better quality coffee, more often and quicker. And, at the moment, Starbucks doesn’t seem to be delivering.

That being said, I’m fairly confident that Brian Niccol is the right person for the job, given his track record. With the right investments, the largest coffee chain in the world will be able to get back on track. Of course, it won’t be easy.