Starbucks CEO Is Tossed Out Like A Poorly Made Latte

In a swift and unexpected move, Starbucks ousted its chief executive officer, Laxman Narasimha. The recent earnings report shed light on the struggles of one of America’s favorite brands. The third quarter revenue for Starbucks dropped 4% in comparable store sales following the previous quarter’s drop of 3%. Compared to the full-year revenue for 2023 which was up 11.5% (the fiscal year ended September 2023), the brand is experiencing sharp declines. Narasimha has only been in the job since March of 2023 and will be turning the reins over to Brian Niccol, CEO and chairman of Chipotle Mexican Grill, as its new chairman and CEO, effective September 9th.

Good Idea; Poor Execution

The company’s business strategy over the past year was transformed right before consumers’ eyes. Most notably, the mass rollout of its mobile order-ahead business caused execution problems in many stores due to high demand, resulting in a less-than-optimal customer experience. Baristas are feeling overworked and underpaid, creating an environment that has allowed the company’s previously perceived high customer service standards to slip.

Store Environments Drove Loyalty But That May Change

While many stores have been remodeled and new ones opened in the past few years with great design features for a sit-and-relax atmosphere, the new strategy has shifted toward less seating, turning some Starbucks stores into mere drive-throughs or pick up only locations (no seats or tables). Since the inception of Starbucks, the dream of Howard Schultz was to create a consistent product offered in a retail space where people can socialize and relax. However, the environment and design of the drive-thru-only and pick-up-only locations are disappointing the very customer who built Starbucks into a company with one of the most well-known loyalty programs in the industry.

Starbucks’ average loyal customer visits a store 18 times per month and the super-loyal 10% fan base visits nearly twice a day. Starbucks’ American Customer Satisfaction Index (ACSI) score in the United States fluctuated from 2006 to 2024. Starbucks had an ACSI score of 80 in 2024 compared to last year’s score of 78. But can the company expect customers to remain just as loyal to a brand that is stumbling on service and execution in an environment that is not meeting their expectations?

Niccol To The Rescue

The latest move by Starbucks might right the ship and put the company back on a prosperous track. Niccol is recognized as bringing the Chipotle brand into the national spotlight as a favorite food option rivaling competitors like McDonald’s, Wendy’s and Burger King. The perceived healthier fast-food option that Chipotle offers established its growth during a time when Americans were turning to healthy food choices. From 2018 to the present, Chipotle’s revenue has increased from $4.5 billion in 2017 before Niccol’s leadership to its most recent annual revenue of $9.9 billion. Net profits grew from 6.3% of total revenue in 2019 to 12.5% in 2023. The news of the change in CEO sent Starbucks’ stock soaring 24.5%.

Howard Schultz, Starbucks founder and chairman emeritus, fully supports the new appointment of Niccol. Shultz stated, “Having followed Brian’s leadership and transformation journey at Chipotle, I’ve long admired his leadership impact. His retail excellence and track record in delivering extraordinary shareholder value recognizes the critical human element it takes to lead a culture and values driven enterprise. I believe he is the leader Starbucks needs at a pivotal moment in its history. He has my respect and full support.”

Business Strategies And A Winning Culture

Starbucks has been known for its consistency in product quality and delivery, in no small part due to the exceptional training of its baristas around the world and its extreme focus on the customer experience. If the company can fix its operational issues, review the store design strategy, and re-create a customer experience that once was a Starbucks hallmark, Niccol may be able to turn around the brand. Driving innovation and growth are key strategies for the company, but Niccol will also have to deal with the current employee morale challenges and work to build a stronger culture reminiscent of the good old Schultz days.