It’s difficult to say precisely when my discontent with Starbucks set in, but Wall Street’s displeasure with the company became clear earlier this month with the sudden ejection of Laxman Narasimhan as CEO and his replacement by Brian Niccol.
Narasimhan, an alumnus of the consulting firm McKinsey with little experience in the restaurant industry, had served as CEO of the Seattle-headquartered corporation for only 17 months.
Niccol, by contrast, led a notable turnaround at Chipotle, the “fast casual” restaurant chain that endured a series of crises from foodborne illnesses by customers in the 2010s.
No wonder Starbucks’ shares rose 25%, a gain of $20 billion, on the day Niccol was named chief executive to begin work on Sept. 9. Shares have recently declined somewhat.
He will become Starbucks’ third CEO in less than three years.
As my colleague Alex Halverson reported, Starbucks is bedeviled by relatively weak sales at stores in the United States and China. Meanwhile, quarterly earnings suffered, supply chain troubles forced a retreat from new products, and boycotts broke out over what pro-Palestinian supporters say is the company’s support for Israel’s war in Gaza.
Both men inherited the $450 million plan by three-time Starbucks chief Howard Schultz (despised by Seattleites for selling the Sonics in 2006) to cut back on the company’s pioneering “third place” business model in favor of drive-through and pickup-only locations. The latter are supposedly — at least in Schultz and the board’s view — more profitable.
But the higher profits didn’t materialize. Schultz publicly chastised the company on a LinkedIn post while it attracted stakes by two well-known activist investor groups: Elliott Investment Management and Starboard Value. Such outfits can demand board seats and threaten a proxy battle — seeking to gain enough shareholder votes — to get their way.
At the same time, Starbucks blundered in labor relations. Although Starbucks Workers United, the group pushing a unionization effort, has succeeded in organizing only 244 stores during the past year (out of about 17,000 locations in the United States), the world’s largest coffee chain’s handling of the effort proved a public relations calamity.
According to The Wall Street Journal, Starbucks board Chair Mellody Hobson asked a trustworthy ally to contact Niccol about the job, then she flew from Europe to California to sell him on the position. Deliberations on the change in the C-suite were kept among a small group, with Shultz being brought in later.
To attract Niccol, the board offered to make him chief executive, as well as provide compensation of $113 million and a remote office in Newport Beach, Calif. This makes him one of the highest-paid CEOs in America.
As Halverson reported, the compensation will increase Starbucks’ CEO-to-worker pay ratio. In the U.S. the median employee is a part-time barista who makes $14,209. The ratio under Narasimhan this past year was 1,028-to-1. It also sends a bad message to a company trying to get workers back to its Seattle headquarters.
“The [Starbucks] board’s willingness to pay such a high price is testament to the faith they have in Niccol,” Ben Silverman, vice president of research at Verity, an analytics firm, told the Financial Times. “But he’s going to have to prove that he’s worth it because his annual compensation is about 75% higher than that of his predecessor.”
It wasn’t supposed to end this way for Narasimhan. He worked as a barista, even burning his hand. He held “Snacks with Laks” forums with employees and streamlined functions at headquarters and in the company’s supply chain.
In China, a market Starbucks had spent decades to harvest, the company saw its share diminish, with Chinese coffee chain Luckin adding as many stores there this past year as Starbucks did in its entire time in the country.
Prices rose as did inflation, understaffing became an increasing problem, and customers were frustrated with increased wait times. Same-store sales in the United States fell in the first quarter of this year.
With 170,000 ways to customize a drink at Starbucks and abundant, less expensive options for coffee-seekers — such as McDonald’s and the many boutique coffee houses in Seattle — it’s little wonder the company faces such challenges.
Removing seating at stores and moving to a drive-through concept is frustrating for longtime customers and bad for the environment, with car-dependent locations ensuring emissions that are a huge part of human-caused climate change.
Steve Weeks, a 68-year-old retiree in Southern California, told The Wall Street Journal that he missed the homey feel of Starbucks’ stores and the removal of furniture has made Starbucks less inviting. “You don’t get the same feeling they want you to stay in there as long.”
My own disaffection with Starbucks began when the company closed its location at Westlake Park in Seattle in 2022, citing crime. At the time, that certainly was credible. But I attracted a Twitter mob when I wrote about this: “Obviously, my critics said, the move was to avoid unionization. Whatever the reason, the location still sits empty, one more barren hulk in a downtown full of them.”
The Starbucks closest to me went to a model where seating was removed, and one could only get a drink and leave. Recently, that store was closed.
It makes me sad.
I’ve worked in three coffee-fueled professions — as an emergency medical technician, college instructor and journalist — but I never cared for bitter hot water. Instead, I fell in love with a mocha in a Denver Starbucks. From there, I was a loyal customer in Cincinnati; Charlotte, North Carolina; and Phoenix. To me, it was always a taste of Seattle.
Sitting in the third space, reading a newspaper, meeting friends and sources, enjoying the music and friendly baristas — that was my Starbucks experience.
I would happily go back. But I haven’t been car-burdened for 14 years and have other options.
Apparently, I’m not the kind of customer the new Starbucks wants.
