On Monday, former Chipotle Mexican Grill (NYSE:CMG) CEO Brian Niccol succeeded Laxman Narasimhan as CEO of coffeehouse chain giant Starbucks (NASDAQ:SBUX).
In a fresh development, Niccol criticized Starbucks in an open letter, which could signal necessary changes for the company:
‘Many of our customers still experience this magic every day, but in some places — especially in the U.S. — we aren’t always delivering. It can feel transactional, menus can feel overwhelming, product is inconsistent, the wait too long or the handoff too hectic. These moments are opportunities for us to do better.
‘People start their day with us, and we need to meet their expectations. This means delivering outstanding drinks and food, on time, every time.’
In a July earnings call, Narasimhan claimed that Starbucks was doing all it could to regain its footing as a premium player. Judging by Niccol’s open letter, however, the new Starbucks chief executive appears to disagree with Narasimhan’s claim.
Sometimes, a corporate CEO serves as little more than a pitchman and a cheerleader. This won’t be the case with Niccol, though, and Starbucks’ stakeholders should prepare for a shakeup—and perhaps some much-needed changes—as the coffee-shop chain struggles to turn itself around.
Starbucks needs a pick-me-up
Starbucks’ third quarter of fiscal 2024 results indicated that the company could benefit from a makeover. First, revenue declined 1% year over year and missed Wall Street’s consensus estimate.
Second, Starbucks’ comparable store sales decreased 3% globally and 14% in China. Furthermore, on a global scale, Starbucks’ comparable transactions declined 5%.
Narasimhan admitted that he’s not satisfied with” those results. At the same time, the former CEO declared that he had “full confidence in the long-term potential of Starbucks worldwide.”
However, given the aforementioned quarterly stats, some shareholders may have viewed Narasimhan’s confidence as baseless. Now that the company has a newly installed CEO, Starbucks has an opportunity to start its next chapter in hopes of a turnaround.
Getting back to basics
If you’ve been to a U.S. Starbucks location lately, you may have noticed some changes. The menus are more complicated than they used to be, and they’re filled with non-coffee items.
Also, you might have experienced longer wait times for your orders than you did in the past. This is problematic at a time when consumers have other options for coffee, including getting it delivered to their doorstep.
Niccol understands that long wait times are unacceptable.
Furthermore, Niccol knows customers don’t always like complicated menus and deserve the best possible experience at Starbucks locations.
Perhaps most importantly, Niccol wants the company to return to the superior customer experiences that helped it grow into a coffee-shop giant in the first place. He proclaimed, “We’re getting back to Starbucks. We’re refocusing on what has always set Starbucks apart—a welcoming coffeehouse where people gather and where we serve the finest coffee, handcrafted by our skilled baristas.”
Now, it’s time to walk the walk
To his credit, it took guts for Niccol to criticize his own company. Yet, he’s only articulating what many Starbucks customers are thinking, and that’s a good first step toward a long-term turnaround.
TD Cowen analyst Andrew Charles evidently approves of Niccol’s audacious approach. “We believe Mr. Niccol is focused on the right drivers to improve traffic and is acting with a sense of urgency,” Charles explained.
However, despite market conditions, investing in Starbucks stock may be too soon. Niccol and Starbucks can talk the talk, but now the company needs to walk the walk, which means Starbucks needs to demonstrate top-line improvement in its upcoming quarterly reports.
Still, Starbucks seems to have a forward-looking CEO now. If Starbucks can successfully return to its roots, a share-price rally might soon be on the menu.
