Meet the new CEO Brian Niccol
Niccol, took over in early September from Laxman Narasimha, who had only been in charge for about a year and a half. Brian Niccol, who is expected to bring the shine and glory back to the cafes, brings with him strong experience from Chipotle, Taco Bell and the multinational company Procter & Gamble. Under his leadership, Chipotle has doubled sales, consolidated its position and become a direct competitor to industry giants such as Mcdonald's. Niccol's previous experience also convinced the founder of Starbucks (SBUX), Howard Schultz, who told Forbes that he has no doubt in Niccol's abilities, believes he will be a key player and has his full support. Niccol, however, faces some challenge as Starbucks is undoubtedly a bigger company compared to Chipotle.
New reinforcements as a solution to shortcomings
The change of director came at a time when the coffee giant is struggling with a number of problems. One of them is a move away from the chain's traditional strengths of creating a warm and welcoming space. The move to mobile ordering, while convenient for the customer, has proved chaotic, undermining the customer experience and increasing the pressure on staff who are struggling to meet demand in the shortest possible time. These changes have affected the consistency and quality of customer interactions and, along with price increases, have weakened customer loyalty and reduced overall satisfaction. According to CNBC, the news of the banning of decorations in support of the LGBTI march, or opinions on the war in the Middle East, have not contributed to the overall positive image of the company, especially in the eyes of the younger generation.
Sharpest decline since the pandemic
The ongoing problems have also had an impact on Starbucks' bottom line, which has seen declining sales since the beginning of the year. In the final quarter of fiscal year 2024, it saw a 3 percent year-over-year decline in revenue to $9.07 billion with net income falling more than 25 percent. Same-store sales were down 7 percent year-over-year. The two largest markets, the U.S. and China, faced low foot traffic, more cautious consumers in terms of spending and local competition, causing same-store revenue in the U.S. to fall 6 percent, while in China it slumped 14 percent.
Shares rose sharply
Over the long term, the company's stock has faced volatility with periods of significant declines, with a 5-year high in July 2021 at $121 per share and a low for the same period at the start of the pandemic in March 2020, when it fell to $65. The announcement of a change of boss on 13 August 2024 caused them to rise by over 24 per cent to US$96 per share, indicating general enthusiasm and a very welcome change among investors. Since that date, they have maintained their value around the same level and were trading at US$98.10 per share as of November 4. The market value of the chain was US$111.13 billion as of the same date, according to Companiesmarketcap.com.*
Starbucks share price performance over the last 5 years. (source: Investing)*
"Back to Starbucks"
That's the working title of Niccolo's plan, which focuses mainly on efficiency and improving the customer experience. One strategy is to address the mobile ordering system with a plan to time the order correctly for pickup, limit beverage customization, and reduce the number of discounted offers. Menu offerings will also be reduced and a target of four minutes from order to product release will be introduced. The aim is to reduce pressure on baristas, improve order accuracy and reduce customer wait times. In addition, new store openings and refurbishments will now be limited. Resources will be shifted to existing outlets to upgrade equipment and improve conditions for staff.
Listening to employees and customers
Niccol visited a number of establishments before drawing up the list of changes and obtained 'first-hand' information from the baristas. As part of the makeover, the new boss also envisions a return to Starbucks as a welcoming gathering place and wants to introduce changes to the cafes' design that will make the outlets more inviting, including adding seating. Traditional elements such as ceramic mugs and spice bars will also return. There will also be a strategic shift in pricing. There will be no price increases next year, while vegans and allergy sufferers will be pleased to see the removal of surcharges for dairy alternatives, which has been one of the long-standing customer requests. The changes are being rolled out first in North America, while cafes in China will undergo the upgrades after Niccole's visit. With these changes, however, he hopes to re-establish Starbucks as a place where customers feel at home, valued, and well-served, even though some innovations may not appeal to everyone.
Olivia Lacenova, chief analyst at Wonderinterest Trading Ltd.
* Past performance is no guarantee of future results.
