Former Starbucks CEO Speaks to the Company’s “Fall From Grace” and Wishes Luck to His Successor

By: Amanda Kusumowidagdo | Published: May 10, 2024

Starbucks is dealing with a lot right now. There’s an ongoing unionization effort nationwide that’s accused Starbucks’ way of handling labor issues as “broken” and “flawed.”

But there’s also the quarterly net revenue that fell below the shareholder expectations. The coffee giant’s revenue slipped to $8.6 billion, a 2% drop that’s nonetheless worrisome for many, including former CEO Howard Schultz.

Starbucks’ Problems

The diminishing sales figures can be blamed on a few factors. Visits from the occasional customers have declined, for one. Another is the peak morning rush that leaves mobile phone orders incomplete and lowers the customer experience overall.

Advertisement
The front of a Starbucks store in Shenzhen, China

Source: Dinkun Chen/Wikimedia Commons

Starbucks’ stock is also down 22% this year, leaving the company worth around $82 billion. And, in its second biggest market of China, sales have also dropped a stunning 8% to $705.8 million.

Advertisement

Begin at Home

So, what does Starbucks need to deal with the problem? Former CEO Schultz said in a LinkedIn post, it needed to undergo a strategic overhaul.

Advertisement
A crowd of people in front of the original Starbucks location in Seattle

Source: Kingofthedead/Wikimedia Commons

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

Wearing the Green Apron

Schultz suggested that the coffee company’s senior leaders, including current CEO Laxman Narasimhan, would do well to spend more time in the stores talking and sharing the same experiences as baristas.

Advertisement
A female barista wearing a green apron with the Starbucks logo on the front standing in the coffee counter

Source: Franklin Heijnen/Wikimedia Commons

But Narasimhan had already begun doing that since he took over the mantle of CEO last year. “My immersion provided me with exposure to every aspect of Starbucks business, culture, and brand,” he said. “Together, we have acknowledged the opportunity for a refounding of Starbucks.”

Reinvention Plan

Narasimhan had also been implementing some “reinvention plans” to deal with Starbucks’ various issues. One of them focuses on long-term hiring and retaining employees, as well as investing in partner wages and overhauling store operations.

Advertisement
A group of baristas wearing green apron posting behind the coffee counter in a Starbucks store

Source: Seattle City Council/Wikimedia Commons

And this has been implemented: starting in 2024, some hourly partners eligible in the U.S. retail received an incremental pay raise of a minimum of 3%.

New Position, New Portfolio

Last March, Starbucks created a new role: CEO for North America. The position came into effect after it began its revamp of the U.S. store portfolio with a new inclusive framework allowing the customers to order with no hassle.

Two people wearing black T-shirts wearing red and green aprons respectively in a coffee counter

Source: Asael Peña/Unsplash

Lighting and structural changes were also made to allow easier listening between baristas and customers. They’re also meant for better communication and efficient execution of work activities.

Advertisement

Some Questionable Suggestions

But not all ideas by Narasimhan are on point for Schultz, it seems. In his LinkedIn post, Schultz appeared to be questioning some of those turnaround plans. Narasimhan mentioned the inclusion of some new drinks that would drive customers to their stores later this year—boba drinks, sugar-free drinks, and an energy beverage.

A person wearing black T-shirt holding a cup of boba tea drink

Source: RDNE Stock Project/Pexels

However, Schultz pointed out that focus should be on coffee. Coffee is what differentiates Starbucks from other beverage brands and where the company’s premium position stands.

Advertisement

Coffee-Forward Innovation

“The go-to-market strategy needs to be overhauled and elevated with coffee-forward innovation that inspires partners, and creates differentiation in the marketplace,” Schultz recommended, which Narasimhan already kept in mind.

Brown coffee beans in front of a Starbucks logo

Source: Engin Akyurt/Pexels

The current CEO announced plans for pop-up coffee shops in the U.S. and elsewhere last month. Plus, Starbucks aims to use the stores to experiment with limited edition coffee drinks and educate younger customers about coffee.

Advertisement

Improving Mobile Orders

Another step that Schultz recommended Starbucks to take is updating its mobile ordering and payment platform. He wants to see it “once again make it the uplifting experience it was designed to be.”

A series of images depicting Starbucks mobile app functions

But he didn’t go into the specifics of what should be changed. Meanwhile, Narasimhan already said last fall that Starbucks is expediting the introduction of new digital features in its app. These features are meant to help with the personalization of the customer experience.

Advertisement

Not Doing Too Much Too Soon

Schultz acknowledged Starbucks’ journey going forward wouldn’t be easy. “‘A miss’ is virtually inevitable even at the best-managed, fastest-growing firms,” he said. Although, he continued, what comes after the miss is more important.

A coffee bar featuring different cups, implements, and bottles

Source: Ludovic Delot/Pexels

“At any company that misses badly, there must be contrition and renewed focus and discipline on the core,” he stated. “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.”

Advertisement

Confident in Its Own Success

Thanks to Schultz’s perspective, Starbucks is ready to move forward. The company told FOX Business how it continues to appreciate the former CEO’s opinions and suggestions.

A hand holding a disposable plastic Starbucks cup filled with ice coffee with the sea in the background

Source: Olivia Lim/Unsplash

“The challenges and opportunities he highlights are the ones we are focused on,” the company said. “And like Howard, we are confident in Starbucks’ long-term success.”

Advertisement

Schultz’s Optimism

The optimism is also shared by Schultz, who’s stepped in several times to lead the company when it’s necessary (first in 2008 and later in 2022). He believed Starbucks would recover, even abroad, from this “fall from grace” episode.

A man holding a Starbucks plastic cup with straw filled with iced coffee

Source: Omar Lopez/Unsplash

He continued to write, “Starbucks will recover — of that, I am certain.Starbucks created an industry that did not exist. The brand is one of the most recognized and respected in the world. I am confident the China business will return to health and become the company’s largest market.”

Advertisement