Why is it so difficult for Howard Schultz to leave Starbucks?
Employees are angry, costs are rising and sales have stagnated. In the past, Starbucks could count on Howard Schultz to come out of retirement and turn around the business — but this time, he might actually be serious about retiring…
Why is it so difficult for Howard Schultz to leave?
Schultz has been crucial to Starbucks’ success. Under his leadership as CEO, $SBUX has returned investors:
- 1986-2000: 1206% vs. S&P 500’s 250%.
- 2008-2017: 385% vs. S&P 500’s 86%.
This year, he once again returned as interim CEO — after repeatedly being brought back to bail out Starbucks. Is the third time the charm? Perhaps it is, with the help of Starbucks’ new “incoming CEO,” announced last week.
Laxman Narasimhan — currently the CEO of U.K. consumer goods giant Reckitt Benckiser (LON:RKT) joined the struggling company in 2019. His turnaround plan at Reckitt “seems to be working” per Bernstein analysts (FT) — but the stock has barely moved since he joined.
On October 1, he will join Starbucks as an “incoming CEO” — working with Schultz for six months to execute a “reinvention” strategy designed by Schultz.
Quad Venti White Mocha Frappuccino, no foam, not too hot…
Extra complicated orders are taking their toll on Starbucks employees. On top of global market conditions and inflation, Starbucks is dealing with a range of employee and operational issues.
- Employee turnover: One in four U.S. baristas quit within 90 days as workers demand better pay, equipment and working conditions.
- Inefficient stores: Stores are having trouble handling Starbucks’ increased volume.
Per WSJ, sales at one East Coast store tripled in the past decade — but employees are complaining about dealing with complex orders and poorly designed stores.
Starbucks now makes over half of its sales from drive-throughs, and therefore the company wants over 90% of stores to include drive-throughs — pressuring baristas even more.
Investors: Uncertain times for $SBUX
To solve employee problems, Starbucks will have to overhaul its stores and processes — which could cost a pretty penny. Starbucks expects new equipment and store redesigns over the next three years.
Investors will scrutinize the cost of its plans — and it doesn’t help that in the recent quarter ending July 3, Starbucks’ sales increased 9% while net income fell 21%. Caffeine to humans is what Schultz is to Starbucks. And we all know how difficult it is to replace coffee with tea.