Quantfury Gazette

Starbucks (NASDAQ: SBUX) is getting another back seat driving lesson from former CEO Howard Schultz

by
Nathan Crooks
Quantfury Team
Starbucks

Howard Schultz can’t seem to stay away from Starbucks (NASDAQ: SBUX), the coffee chain he transformed into a global powerhouse over three separate stints as its CEO. The billionaire businessman and author occasionally known for his political ambitions took to LinkedIn last week with a very public wake-up call for the new leadership at the company after it posted second quarter results that disappointed investors and sent its share plummeting. 

“The answer does not lie in data, but in the stores,” he wrote in what could be interpreted as a rather pointed message for current CEO Laxman Narasimhan, a 19-year veteran of McKinsey & Company — a management consulting firm known for its selective hiring and corporate problem solving. Schultz, who no longer has a formal role at the company but remains its fifth largest shareholder, said that mobile ordering and payment platforms frequently cited as pain points need to be overhauled. More importantly, he called for “coffee-forward” innovation that would create differentiation and reinforce a premium position in the marketplace.

“Focus on being experiential, not transactional,” Schultz continued. Those could be some tough words for a management consultant to process. Narasimhan, who had some training as a barista in preparation to take over as CEO last year, at the time said he planned to focus on supply chain issues after being “startled” by how many different cup and lid pairings existed in the stores. He’s the first chief executive at the company to come from outside its ranks since Schultz took it over in 1987. 

The company’s latest reinvention strategy – unveiled by Narasimhan last November – is full of the consulting speak that’s often derided on social media with mostly meaningless and broad phrases like “unlocking efficiency” and “reinvigorating partner culture.” While there are promises of increased “human connection,” “purpose-defined stores” and a new AI collaboration with Microsoft, there’s no actual mention of making a good cup of coffee. It’s all buzzwords, and no passion.

Starbucks investors seem to be catching up to what many who frequent the stores already know. The chain isn’t as hip as it used to be, the lines can move slowly, and, as any coffee aficionado can tell you, there’s usually more interesting espresso elsewhere. That’s all contributed to declining sales that have pushed the company’s shares down 29% over the past year. While Narasimhan blamed headwinds including “a more cautious consumer” and severe weather in the US, other companies are doing better. Dutch Bros (NYSE: BROS) — a growing operator of 876 drive-thru specialty coffee shops across 17 US states that focuses on “unparalleled speed” — has surged 30% over the same period, while industry benchmark McDonald’s declined 8%.

Narasimhan, who described the latest results as “disappointing” in a recent earnings call, undoubtedly has large shoes to fill, and it’s likely a delicate, if not outright uncomfortable, situation to receive public advice from a backseat driver like a former CEO. Schultz, however, built the company from the ground up, and investors will surely be watching to see how its new leaders react to his latest plea. Above all, he seems to be asking for a little more passion in an industry increasingly focused on numbers and gimmicks. 

“The path forward should be what has guided the company over decades of financial success,” Schultz wrote, adding that he was certain it would recover. “Inspire your people, exceed the expectations of your customers, and let culture and servant leadership lead the way.”

That’s some free advice that anyone can heed. No consultants needed.

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