Starbucks’ new CEO must focus on ops, value and less complexity

Starbucks is being reborn, with repercussions that will be felt throughout the organization, from barista boots on the ground to the company’s suppliers. 

The appointment of Brian Niccol, CEO of Chipotle Mexican Grill, to replace Laxman Narasimhan as chief executive is the first step. It sends a clear signal that tried-and-tested leadership with operational experience is needed if the iconic brand is to be regenerated. 

A key issue under Narasimhan was a loss of confidence in leadership. He was an outsider with no restaurant background — all the cultural changes and employee benefits at Starbucks happened under former CEO Howard Schultz. But incoming CEO Brian Niccol, is like minded. He actually took a page out of Schultz’s playbook and brought it to Chipotle.  

Moving forward, the change goes back to Schultz’s roots, dealing with operational issues from a place of experience. There are many operational issues that need to be fixed and that the chain was trying to attend to. But under the outgoing CEO, it was caught up in a more theoretical mindset for how to fix things. Starbucks will benefit from greater on-the-ground knowledge, both at the back of the house and at the corporate level with development, innovation and marketing.

Here's my take on the fixes that need to be addressed.
 
•The key problem is economic. Starbucks is facing the same consumer challenge everybody else is wrestling with right now, which is that value. U.S. consumers are concerned about their wallets, which is slowing down Starbucks’ performance here. And while leadership is trying to fix things, they were still dealing with consumer sentiment that's really pushing on value. That’s challenging both from within and outside the company. Some of the recent promotional activity provided a bit of bounce but it didn’t really stick. 

•Starbucks abroad. Starbucks has to seriously think through its entire business model internationally, even as it tries to keep up with the expansion plans that Howard Schultz laid out, i.e., double the number of stores. But the company is challenged in China. While it is trying to expand its footprint there, the local competition has doubled its size.  
 
•Culture problems meet inflation. Starbucks is currently triaging several challenges, including union problems, technology, menu, pricing, operations, promotions and sky-high commodity inflation with ingredients like cocoa and cinnamon.  And the union problems are something it never really had before now. Starbucks was an organization that gave its frontline people benefits that the industry never even thought of, much less provided. So some of the culture problems started to occur when Howard Schultz stepped away. At the same time, prices were going up, and while everybody was riding the wave of the consumer coming out of Covid, that advantage has now disappeared. 
 
•Focus needs to be on value. As it is with discretionary CPG purchases, so it is with food away from home: Consumers are looking for value. While this has always been the case for lower income consumers, today it applies at all income levels, particularly as credit card debt is exploding and balances are getting maxed out. So the fix starts with value, value and value. 
 
•Starbucks needs menu innovation and simplification. In the long term, it must address its core menu. Menu innovation is highly relevant, especially in limited-time offers, but Starbucks will need to reduce some of the complexity. Also, the frequent addition of new beverages has caused complexity fatigue. Menu complexity created wait-time issues, either because of understaffing at the store, or because staff wasn’t trained properly. While the level of complexity has to be reduced, given the longevity and loyalty of Starbucks’ staff, the fix also has to occur at the labor training level. And special offers to their loyal customers need to be refreshed, so that they continue to keep coming back on a frequent basis as they previously did. 
 
•Get back to motivating the store labor by refreshing their benefit packages or other incentives. For example, while Howard Schultz emphasized education, it may now be time to review health care or take a close look at daycare, which is a big issue in industry retention and the ability to keep the workforce happy. There is a whole segment of things the company needs to address with its workforce, to bring that motivation back. In-store staff are the ones giving the consumer the sense of value, and that will bring back the store culture. From there, innovation will follow. 
 
•Customer experience and technology are intertwined. Wait times need to be shortened and the customer experience needs to improve – customer experience takes a serious hit when Statrbucks’ technology fails them. This is an area that needs work. That said, Starbucks has made some incredible progress with their tech, but it needs to do a better job communicating this to their loyal customers through the app. One of the reasons the promotions haven’t worked is that they’re communicating to the wrong customer through the app. That’s another area that needs close attention. The temporary promotional drivers did not resonate with their core consumer or attract enough new customers. 
 
•De-complexify the supply chain. The complexity of the store backs into the supply chain, whether through ingredients or supplier relationships. Many of those relationships are currently very strained and need to be simplified as well.