Starbucks seems to bounce between two types of CEOs: those who care about coffee and atmosphere and those who worry about efficiency and operations.
Howard Schultz, the chain’s multi-time CEO, seemed pretty good at balancing both sides of the business, but he always seemed to understand that at its core, Starbucks (SBUX) was a place to hang out and drink coffee.
Related: Dollar General CEO flags alarming shift in customer behavior
Laxman Narasimhan and Kevin Johnson, both of whom followed Schultz in the top spot, always seemed more concerned about operations than coffee. Narasimhan was particularly guilty of this as he rarely even mentioned the chain’s signature beverage.
Current CEO Brian Niccol should understand both aspects of the business. As CEO of Chipotle, he focused on the chain’s food while also improving its operations. He most famously added a second “make line” to every store to handle mobile and digital orders.
That improved the in-store experience in a meaningful way. Niccol also incorporated limited-time offers in a way that made them special.
He does not have a background in coffee, but he has made it very clear that he understands where Starbucks has lost its way.
Some Starbucks locations are getting new beverage-making technology.
Image source: Starbucks
Starbucks CEO sets clear priorities
Niccol has not been shy in sharing how Starbucks needs to improve. He made that very clear during the company’s first-quarter earnings call.
“Our path Back to Starbucks in the U.S. is driven by four core initiatives: reintroduce Starbucks to the world, deliver the customer experience to win the morning, reestablish Starbucks as the community coffeehouse, and ensure Starbucks is the unrivaled best job in retail, recognizing our success starts and ends with our Green Apron partners,” he said.
Those are lofty goals, but they address the problems the chain has had with both its customers and its workers. He began making changes by doing something that may hurt in the short term.
“We started by reducing the frequency of discount-driven offers, resulting in 40% fewer discounted transactions year over year,” he shared.
More Retail:
Target’s latest policy change sparks massive boycott threatBounty, Tide, Dawn owner issues stern warning about its pricingGameStop makes a drastic move amid weak sales
That was coupled by providing some real value for customers on an everyday basis.
“We also removed the extra charge for nondairy milk customizations and identified several other steps we can take to make our pricing architecture more transparent for customers,” he said.
Show the world Starbucks has changed
Niccol noted that the week of the earnings call also marked the launch of what he called a “coffee forward” advertising campaign.
“Our work to reintroduce our brand is just beginning, but our core business is already strengthening, demonstrating that when we talk about our business, customers respond. Through the quarter, we saw a shift in our sales mix toward coffee and espresso-based beverages, which over-delivered and compensated for lower-than-expected performance across our holiday promotions,” he said.
The new CEO has also pledged to get rid of underperforming menu items.
“We’ve been focused on simplifying our menu to position partners for success, improve consistency, drive customer satisfaction, and enhance our economics,” he added.
The menu changes have only just begun.
“In the coming months, you’ll see us begin to optimize our menu offerings, resulting in a roughly 30% reduction in both beverages and food SKUs by the end of fiscal year 2025. As we do, we’ll work to lead this market with breakthrough beverage and food innovation. We’ll do this by being responsive to customer trends and their changing preferences,” he shared.
Niccol also wants to improve the work environment for employees to allow them to deliver a better customer experience.
“It’s become clear through our pilot work that order sequencing creates more of a bottleneck than capacity. In short, investments in staffing and deployment, processes, and algorithm technology demonstrate the greatest opportunity to deliver a four-minute wait time in most of our cafes,” he shared.
Related: Kohl’s CEO sounds the alarm on key customer problem
Starbucks, he noted, has added additional staff hours at more than 3,000 U.S. stores.
“And soon, we’ll launch a pilot across 700 stores, looking at staffing levels to improve our Green Apron partners’ ability to serve the world’s finest coffee with a moment of connection. We’ll use learnings from this to inform the future investments we need to make in-store coverage hours to deliver both an exceptional partner and customer experience and further differentiate our brand,” he added.
