Brian Niccol is cleaning the grounds out of the coffee machines.
On Tuesday, the new Starbucks Corp chief executive officer suspended guidance for next year after sales plunged.
Like his counterpart at Nike Inc, where new CEO Elliott Hill also withdrew the company’s outlook for its fiscal year, Niccol is in effect carrying out the classic corporate “kitchen sinking.”
Illustration: Kevin Sheu
This involves getting all of the bad news out of the way early to create a low base from which to rebuild.
Like Hill, he should go further.
In Niccol’s case, that means ditching the aggressive targets that Starbucks patriarch Howard Schultz set two years ago to expand global same store-sales by 7 to 9 percent through next year and increase earnings by 15 to 20 percent per annum over the same period.
Given that Starbucks reported a 7 percent decline in same-store sales in the quarter ended Sept. 29 and that Niccol has suspended the current guidance, falling short of Schultz’s growth ambitions looks a foregone conclusion.
However, formally replacing Starbucks’ long-term goals with something achievable is still wise. It would wipe the coffee counter clean for what is shaping up to be Niccol’s “Back to Starbucks” strategic blueprint. Crucially, it would also set him apart from former CEO Laxman Narasimhan, who held onto Schultz’s targets and was forced to lower them several times.
The 6 percent decline in US same-store sales in the fiscal fourth quarter underlines the extent of the turnaround.
This is not a case of a corporate breakup or hiving off underperforming divisions to create value — although Nicol should look at options for its underperforming China business such as a full or partial sale or franchising.
Instead, fixing Starbucks is about doing lots of things better to ensure customers leave its cafes clutching their morning brews feeling delighted, not disappointed.
Niccol, who became CEO last month after reviving fast-casual dining chain Chipotle Mexican Grill Inc, appears to be aware of this requirement.
He said in a video message on Tuesday, echoing an open letter to staff last month, that he planned to restore Starbucks’ historic coffee shop vibe. He will also sensibly focus on the domestic business. More details will be revealed when Starbucks announces earnings.
However, we have gotten some clues. Niccol is revisiting its stores to ensure they have the amenities that customers expect — this could mean the return of self-service milk and sugar for example — and appropriate staffing.
Bloomberg News last week reported that only 33 percent of workers who responded to a survey of the chain’s 10,000 US company-owned locations said stores consistently had sufficient staffing.
Niccol said he would remove bottlenecks in cafes and simplify its overly complex menu. To help this along, he aims to refine its mobile ordering system, so that it does not overwhelm physical locations. Here he could emulate a strategy at Chipotle, where he established a separate assembly line for digital orders.
And he plans to overhaul marketing so that it is addressed to all customers, not just the narrow subset who are members of its loyalty program. He recently hired Tressie Lieberman, who previously worked at Chipotle as its chief brand officer.
Another focus: Pricing. Niccol recently cut back on promotions and discounts. The chain had increasingly leaned on these tools to drive demand, but they can lead to a spike in customers, exacerbating the long lines that have pushed some customers away.
Niccol should address the regular cost of a cup of coffee. While the chain has always had a premium positioning, prices have drifted up. Starbucks is an affordable luxury, but for many customers it has become increasingly unaffordable.
Restoring Starbucks’ local-coffeehouse feel also means upgrading stores. While new models are already being rolled out, many locations look tired. These two areas should be a priority.
The extent of the sales decline and Niccol’s long to-do list underline that, like at Nike, turning around Starbucks will not be quick or easy.
The shares have risen 26 percent since he was appointed in August. Given the scale of Niccol’s task, a dose of reality was needed. Investors should sip on a cold brew, not a frothy cappuccino.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
The gutting of Voice of America (VOA) and Radio Free Asia (RFA) by US President Donald Trump’s administration poses a serious threat to the global voice of freedom, particularly for those living under authoritarian regimes such as China. The US — hailed as the model of liberal democracy — has the moral responsibility to uphold the values it champions. In undermining these institutions, the US risks diminishing its “soft power,” a pivotal pillar of its global influence. VOA Tibetan and RFA Tibetan played an enormous role in promoting the strong image of the US in and outside Tibet. On VOA Tibetan,
Sung Chien-liang (宋建樑), the leader of the Chinese Nationalist Party’s (KMT) efforts to recall Democratic Progressive Party (DPP) Legislator Lee Kun-cheng (李坤城), caused a national outrage and drew diplomatic condemnation on Tuesday after he arrived at the New Taipei City District Prosecutors’ Office dressed in a Nazi uniform. Sung performed a Nazi salute and carried a copy of Adolf Hitler’s Mein Kampf as he arrived to be questioned over allegations of signature forgery in the recall petition. The KMT’s response to the incident has shown a striking lack of contrition and decency. Rather than apologizing and distancing itself from Sung’s actions,
US President Trump weighed into the state of America’s semiconductor manufacturing when he declared, “They [Taiwan] stole it from us. They took it from us, and I don’t blame them. I give them credit.” At a prior White House event President Trump hosted TSMC chairman C.C. Wei (魏哲家), head of the world’s largest and most advanced chip manufacturer, to announce a commitment to invest US$100 billion in America. The president then shifted his previously critical rhetoric on Taiwan and put off tariffs on its chips. Now we learn that the Trump Administration is conducting a “trade investigation” on semiconductors which
By now, most of Taiwan has heard Taipei Mayor Chiang Wan-an’s (蔣萬安) threats to initiate a vote of no confidence against the Cabinet. His rationale is that the Democratic Progressive Party (DPP)-led government’s investigation into alleged signature forgery in the Chinese Nationalist Party’s (KMT) recall campaign constitutes “political persecution.” I sincerely hope he goes through with it. The opposition currently holds a majority in the Legislative Yuan, so the initiation of a no-confidence motion and its passage should be entirely within reach. If Chiang truly believes that the government is overreaching, abusing its power and targeting political opponents — then
RSS