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It feels like it’s been a while since Starbucks felt like Starbucks.

By that, we mean the smell of coffee, failed writers sitting at benches reinventing themselves on Macbooks. Maybe the NYTimes and WSJ is sitting nearby.

Starbucks used to be known as the Third Place. We have homes for our daily lives and gatherings, restaurants for our meals, and Starbucks for a lot of that in-between stuff. Now, it feels like a drinks factory churning out customizable BS to get you out the door.

We recognize a few causes here as to what’s brought the company to this place:

1. Failure to transition back into “normal mode” after the pandemic

2. Hiring the wrong CEO in Laxman Narasimhan

3. Being allergic to unions despite a lifelong culture of benevolence

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Starbucks stock has taken a beat down during the last 12ish months, rising sharply at the announcement of Brian Niccol taking the helm as CEO (more on him later).

Starbucks post-pandemic experience

During the pandemic, Starbucks, like every high-touch food-service company, had to adapt to the new way of doing things. Like many other companies, it did the following:

1. Digital and Contactless service

2. Changing the store to limit contact between barista and customer(drive through only; pick-up only)

3. Operational Efficiency - Slash costs, invest in technology, to try and preserve a covid-ridden bottom line

Starbucks executed these plans to success, and the stock was doing great during those times.

Enter Laxman Narasimhan, Starbucks’ outside CEO

Fast forward to 2022. We’re emerging into a post-covid world and Howard Schultz says the company will look at outside candidates for a new CEO position. This could also have meant ‘we need someone who knows how to navigate collective bargaining’ as Starbucks has been increasingly confronted with workers unionizing.

So Starbucks hires Laxman Narasimhan. Really impressive guy, Ex-Mckinsey, led a turnaround at a huge CPG firm (Reckitt), and knows how to navigate the maze of unionization (collective bargaining increased during his last CEO stint).

Sometime after Narasimhan takes over, he lays out his company wide vision. It’s called ’Triple Shot Reinvention with 2 Pumps’.

Weird name…but ok?

It’s an extension of the covid strategy without the covid.

So this…entire thing doesn’t end up  working out.

Same-store sales decrease. Foot traffic and sales fail to meet Wall Street’s assumptions. At the same time Howard Schultz plots out an alternative vision that values providing an experience rather than being transactional in a letter titled ‘The Soul of a Brand’.

Starbucks and its union ‘problem’

Starbucks has not been reacting well to unionizing. Here’s an example:

In October 2023, the National Labor Relations Board (NLRB) ruled that Howard Schultz made an illegal threat to a union supporter during a listening session, at the beginning of which he made assurances that there wouldn’t be retaliation against union support.

Reader note: We didn’t do an analysis on how sales were impacted due to the boycott and bad press re: unionization. Emily Stewart from Vox wrote a really thoughtful article on this issue.

Brewing a new strategy

In August 2024, Brian Niccol was announced as the new CEO + Chairman of Starbucks. The stock jumped because of this announcement. That’s because Niccol is the Aaron Judge of fast casual. He’s the reason why Chipotle is Chipotle. 

Unsurprisingly, some of the things he’s announced are aligned with Schultz’s open letter to Starbucks (focusing on experience, not transaction).

Stuff like:

• Names on cups (sharpies)

• Paring down menu/customizations

• Bringing back the condiment bar

• Bringing back newspapers

• No upcharge for non-dairy options

This is low hanging fruit that’s already conveying more focus on the customer experience than the ‘Triple Shot’ strategy.

There’s a lot of turning around still left to do, though.

Things not covered:

• Starbucks’ China strategy:

  • Perfect timing for Niccol to fix up American Starbucks locations since China’s economy is in a crunch right now.

• Current state of unionization:

  • We can expect some sort of major update from the company/union in 2025. Narasimhan’s softer touch paved the way for easier talks.

None of this is investment advice.

Have a great week!