Can CEO Howard Schultz make Starbucks Grande again?
Howard Schultz left Starbucks (NASDAQ:SBUX) in 2017 in seemingly good hands. In April, he returned as interim CEO – his third return – to face freshly brewed issues.
Despite reporting strong Q2 earnings – the unionization train is barreling towards the company’s bottom line.
A tall order to fill
Starbucks has seen a post-pandemic shift in customer habits towards drive-thru and iced drinks, while managers prioritize speed over service. But the carefully crafted in-store experience and customized Frappuccinos weren’t equipped to handle the change – frustrating employees.
Kevin Johnson replaced Schultz as CEO in 2017 – and now Schultz has replaced Johnson – who announced his retirement in March, going full circle.
But fixing Starbucks’ problems is no small feat. Schultz wants to reverse “adverse short term decisions” and has made several moves upon returning.
- Schultz started a “listening tour” – identifying worker complaints – with plans to improve training and store equipment.
- He suspended stock buybacks and announced a $1 billion investment to double training and boost pay for non-unionized workers.
Not the Starbucks employees once knew
Unions help workers bargain for better pay and working conditions, and after 40 years of steady decline, unionization is rising again. This bodes well for workers but not so much for penny-pinching companies.
Starbucks is the latest target of union pushes, dividing the company’s workers.
- Starbucks is a top target of labor complaints – accused of firing union organizers and slowing down the unionization process.
- The culture shift is especially bad for Starbucks – known for its warm customer experience.
More and more stores are joining the union push, with 250 of 9,000 U.S. stores calling for union votes. But unions are only one of Schultz’s many problems.
Investors: Sip carefully
On Tuesday, Starbucks reported Q2 earnings with investors focused on the impacts of unionizing and international lockdowns:
- Net sales rose 14.5% to $7.64 billion, and North American sales grew 12% – owing to a strong post-pandemic recovery.
- International sales fell 8% – impacted by China’s lockdowns with nearly a third of its stores in China closed or only opened for mobile order or delivery.
For the rest of the fiscal year, Starbucks suspended guidance with China’s lockdowns making forecasting sales difficult.
Bringing its CEO back from retirement during a company crisis isn’t a sustainable option — and the Board has set a deadline to bring in a new CEO by the fall. Eventually, Starbucks will have to learn to live without Schultz – even if that means near-term pains.