There’s only been one truly successful CEO for Starbucks — but the company may have finally found another.
On August 13, the coffee giant Starbucks (SBUX -0.71%) shocked the investment world when it named Brian Niccol as its new CEO. Niccol was previously CEO at Chipotle Mexican Grill. And to woo him, Starbucks was willing to absolutely break the bank. His total pay package is said to be worth over $110 million.
With one of the biggest pay packages on Wall Street, Niccol is now a superstar CEO. But Starbucks didn’t bring it in to maintain the status quo. Instead, the company is desperate to turn things around.
On September 10, Niccol laid out a 100-day plan to start fixing things at Starbucks. And it all starts with her business in the US
What’s the problem with Starbucks?
Niccol just wrote an open letter to all Starbucks stakeholders, and he didn’t mince his words. He said that at chain coffee shops in the US, “It can feel transactional, the menus can feel overwhelming, the product inconsistent, the wait too long or the delivery too rushed.”
These observations — especially the last one — are not necessarily new. In the second quarter of 2024, then-CEO Laxman Narasimhan said that some of Starbucks’ most loyal customers “sometimes chose not to complete their order, citing long product wait times and availability.”
Former Starbucks CEO Howard Schultz echoed Nicol’s sentiments in a social media post earlier this year. Schultz specifically used the term “transactional” to describe a sentiment that should be avoided, as Niccol did in his open letter. But Schultz would also approve of Niccol’s plan to start with the US side of the business, as he said “US operations are the main reason for the company’s fall from grace”.
In Starbucks’ North American segment (most of which is the US), transactions have declined over the past two quarters. This happens from time to time with a restaurant business. But in this case, the company believes the decline could have been avoided just by addressing things within its control. And that’s why it’s imperative to take things back.
So what’s the plan now?
If this sounds like a small problem for Starbucks, I believe it’s fair to say that it is because it is. The company completed its fiscal third quarter in June. During the first three quarters of fiscal 2024, it generated revenue of over $20 billion in North America, which was up 3% from the same three quarters of fiscal 2023.
Also during the first three quarters of fiscal year 2024, North America had over $4.1 billion in operating income, which was up 5%.
In short, North America is still a big and growing business for Starbucks, and it’s profitable. The company is not experiencing a complete disaster. But the problems she has are self-inflicted, so it is imperative to fix things.
For Nicol, part of the plan for Starbucks is to perfect the breakfast experience, which is crucial. After all, management says roughly half of its sales come during the morning hours. And starting someone’s day off with a bad coffee experience is an easy way to lose customer loyalty.
Niccol also wants to invest in the company’s baristas. He wants to make customers interested in eating at its cafes again instead of just performing. And he wants customers to better connect with the brand. But these all sound like suggestions Schultz made earlier this year.
That’s why I believe Starbucks shareholders should have hope for the future. While Starbucks stock has been one of the top investments over the past 30 years, the company has struggled each time Schultz has left. It seems like he has a strong understanding of what makes Starbucks great that others don’t. Niccol’s plan sounds a lot like something Schultz would create. And so I think Starbucks’ prospects without Schultz at the helm are finally improving.
To be clear, Nicol’s plan only addresses the next three months in the US; there are problems elsewhere in the business that need to be resolved eventually, especially in China. In short, there is a lot of work to be done. But I believe Starbucks is quickly back on track under Niccol’s leadership, which is something to be excited about.
Jon Quast has positions in Starbucks. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: February $52 September 2024 puts Chipotle Mexican Grill. The Motley Fool has a disclosure policy.