Starbucks' 'fall from grace': Howard Schultz says company needs to fix US operations

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Former Starbucks CEO Howard Schultz expressed the need for the coffee giant to undergo a strategic overhaul after its earnings “significantly” fell short of shareholder expectations. 

In a LinkedIn post on Sunday, Schultz, who stepped down as interim CEO in March 2023, and from the company’s board of directors a month later, spoke candidly about the company’s “fall from grace,” particularly in the U.S. market.

Not only has the company been dealing with ongoing unionization efforts nationwide, but it is also feeling “the impact of a more cautious consumer,” CEO Laxman Narasimhan said. Last week, the company reported that its quarterly net revenue slipped 2% to $8.6 billion. Same-store sales in the quarter fell 4%, the first decline since 2020.

FOX Business reached out to Starbucks for comment.

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“I have emphasized that the company’s fix needs to begin at home: U.S. operations are the primary reason for the company’s fall from grace,” Schultz said in the LinkedIn post.

To start, “the stores require a maniacal focus on the customer experience, through the eyes of a merchant,” he said. “The answer does not lie in data, but in the stores.” 

Since Narasimhan took over last spring, he has been implementing the company’s “reinvention plan,” which he has said requires a continued focus on long-term hiring and retention as well as investing in partner wages and revamping store operations. 

At the start of 2024, eligible U.S. retail hourly partners saw an incremental pay increase of at least 3%. In March, the company created a new role of CEO for North America shortly after it began revamping its U.S. store portfolio with a new inclusive framework to give the customers minimal friction when ordering. The lighting and structural changes are also geared to make it easier for people to hear one another as well as get their work done in its shops.

Starbucks San Francisco

Despite the ongoing efforts, Schultz, who had served as chief executive from 1986 to 2000 and again from 2008 to 2017 before temporarily taking over in 2022, argued that “senior leaders—including board members—need to spend more time with those who wear the green apron.” 

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He added that the first thing the company needs to do is “reinvent” its mobile ordering and payment platform. 

Additionally, “the go-to-market strategy needs to be overhauled and elevated with coffee-forward innovation that inspires partners, and creates differentiation in the marketplace,” which would reinforce the company’s premium position, according to Schultz.

Ticker Security Last Change Change %
SBUX STARBUCKS CORP. 73.30 +0.18 +0.25%

The former chief executive acknowledged that “‘a miss’ is virtually inevitable even at the best-managed, fastest-growing firms.” 

But he argued that what comes after the miss is what matters. 

“At any company that misses badly, there must be contrition and renewed focus and discipline on the core. Own the shortcoming without the slightest semblance of an excuse. There is a natural tendency to try to do too much too soon. Don’t try to do everything at once.” 

FOX Business’ Breck Dumas and Greg Norman contributed to this report. 

Read the full article here

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