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Starbucks<\/a> Corp.\u2019s incoming Chief Executive Officer Brian Niccol has spent the last few weeks visiting dozens of the company\u2019s coffee shops. Poring over menus, store formats and the myriad options of drink preparations, the former Chipotle<\/a> chief has been trying to get a handle on the world\u2019s largest coffee chain before he officially takes the helm Monday.<\/p>\n Expectations are high<\/a>. The company\u2019s shares\u00a0soared 18%\u00a0after it named Niccol, ousting his predecessor, Laxman Narasimhan, after two consecutive quarters of sales slumps.<\/p>\n Now, Niccol faces problems ranging from lengthy order times and falling demand to union contract negotiations and pressure from activist investors. While Niccol was a star at\u00a0Chipotle Mexican Grill Inc.<\/a>,\u00a0some on Wall Street have cautioned that Starbucks\u2019 global footprint and complex business make turnaround efforts much more difficult than what he faced while leading the burrito chain.<\/p>\n In a statement, the company said that Niccol\u2019s understanding of branding, operations and innovation makes him \u201cthe right person to drive Starbucks forward.\u201d<\/p>\n Niccol\u00a0focuses his energy on select projects with big payoffs, according to people who have worked with him. He directs staff to \u201cmake the big thing the big thing\u201d instead of getting lost in a host of initiatives, one of the people said. That might be what workers, investors and latte drinkers are looking for as he tackles Starbucks\u2019 most pressing problems.<\/p>\n Starbucks\u2019 sales have\u00a0fallen\u00a0in recent quarters \u2014\u00a0a shocking turn of events that garnered the attention of activist investors. The main culprit was a decrease in transactions as inflation-battered customers cut back on iced lattes. Starbucks has also raised prices, and some consumers\u00a0are now questioning\u00a0if it\u2019s worth it to pay $7 for an\u00a0apple crisp oat milk macchiato<\/a>.<\/p>\n Niccol needs to \u201cjustify why the experience is deserving of a continued premium \u2014 or shift it and become more mainstream,\u201d said\u00a0Kevin McCarthy<\/a>, a portfolio manager at Neuberger Berman, which owns shares of Starbucks.\u00a0The company has also been targeted by\u00a0boycotts<\/a>\u00a0over its perceived stance in the Israel-Hamas war, and\u00a0Niccol will have to figure out how to \u201cextract the brand\u201d from that conversation, McCarthy said.<\/p>\n Abby Roach<\/a>, a portfolio analyst at Allspring Global Investment, which also owns Starbucks shares,\u00a0said Niccol needs to position the coffee chain to launch new products that draw visitors in but don\u2019t overwhelm stores. For one potential approach to the issue, Roach pointed to Chipotle\u2019s chicken al pastor, which consists of the chain\u2019s grilled chicken with a different sauce. The idea is to take an existing product and tweak it only slightly to offer a new flavor\u00a0without adding more work.\u00a0<\/p>\n Regular customers\u00a0are grappling with\u00a0extended waits<\/a>, to the point where some give\u00a0up on placing a mobile purchase after seeing the\u00a0estimated time. To Starbucks, that means millions in\u00a0lost sales<\/a>.<\/p>\n The slowdown\u00a0stems in part from\u00a0a\u00a0surge in\u00a0complicated drinks<\/a>, along with\u00a0a jump in mobile orders: Customers find\u00a0it\u2019s easier to hyper-customize their beverages on the app\u00a0without a line waiting behind them. Baristas also say stores don\u2019t have enough workers. Starbucks has said it updated\u00a0its labor allocation model\u00a0to ensure sufficient\u00a0capacity\u00a0and\u00a0has improved the drink-making process to save time.\u00a0<\/p>\n Analysts and investors are encouraged by Niccol\u2019s track record at Chipotle, where he rolled out a second assembly line for digital orders to relieve pressure on restaurant staff. One Starbucks retail worker, who asked not to be named discussing their employer,\u00a0said Niccol should slow down the onslaught of mobile traffic. Baristas have\u00a0reason for hope on this front: Chipotle has limited the number of digital orders that can come in over a given time period\u00a0so workers don\u2019t get swamped.<\/p>\n Still, it may not be enough. \u201cThis is like, if you build it, will they come?\u201d said\u00a0Eric Gonzalez<\/a>, an analyst at KeyBanc Capital Markets, referring to lapsed customers.\u00a0<\/p>\n Starbucks\u2019 China unit has struggled since the pandemic, saddled by the country\u2019s economic slowdown and fierce competition from lower-priced competitors such as a\u00a0resurgent\u00a0Luckin Coffee Inc.\u00a0And while there\u2019s nothing Niccol can do about the local\u00a0property crisis<\/a>\u00a0or\u00a0gloomy job market<\/a>, he\u2019ll still have to decide how Starbucks navigates the problems. The market is the company\u2019s biggest, along with\u00a0the US.\u00a0<\/p>\n Starbucks owns and operates Chinese stores itself\u00a0rather than using\u00a0a third party\u00a0as it does in many other international markets. In July, the company said that it was in the early stages of exploring \u201cstrategic partnerships\u201d in China, but it\u2019s still not clear what that means exactly. Activist investor Elliott Investment Management has pushed the company to\u00a0continue the review<\/a>.<\/p>\n While Niccol has extensive experience in turning US restaurant companies around, he has limited international exposure.\u00a0Chipotle is largely focused in the US, compared to the 80 markets that Starbucks operates in. \u201cIt\u2019s a question mark, for sure,\u201d KeyBanc\u2019s Gonzalez said.<\/p>\n Niccol will need his marketing chops to make Starbucks the go-to choice for Chinese consumers, who traditionally\u00a0prefer tea. He\u2019ll have to\u00a0\u201cdrive consumers towards drinking not only more coffee, but drinking more of Starbucks\u2019 coffee,\u201d said Allspring\u2019s Roach.<\/p>\n Whatever turnaround plan he adopts, Niccol has to ensure there\u2019s\u00a0buy-in from the rank and file, Neuberger\u2019s McCarthy said. Morale among some workers has taken a hit in recent years from the company\u2019s aggressive pushback against unionization, its\u00a0response to boycotts, and frequent changes at the top.<\/p>\n Starbucks has said Niccol is\u00a0committed<\/a>\u00a0to building a culture where workers feel valued. Those who have worked with him say he\u2019s skilled at hiring talented people and helping them grow into bigger roles.<\/p>\n Meanwhile, Niccol\u2019s previous\u00a0stance on unions has garnered scrutiny internally, Bloomberg\u00a0reported<\/a>. An arrangement that\u00a0allows<\/a>\u00a0him to continue living in California and travel to the Seattle headquarters via private jet has also raised eyebrows. Starbucks has said it will continue to negotiate in good faith with the union and that Niccol will spend most of his time in Seattle.<\/p>\n Several employees who spoke to Bloomberg on the condition of anonymity said they don\u2019t care where Niccol works from \u2014 as long as the company doesn\u2019t crack down on its three-day in-office requirement and lets\u00a0remote workers maintain that status.<\/p>\n This is something\u00a0that Niccol has dealt with before: At Chipotle, he\u00a0took over from founder Steve Ells, who left the company within two years. Now he\u2019ll have to contend with\u00a0Howard Schultz, the longtime Starbucks leader who built the chain into the behemoth it is today. Schultz\u00a0no longer has a formal role at the company, but he\u2019s known for hovering around and\u00a0weighing in<\/a>\u00a0\u2014 both in public and in private. Niccol is only the second external CEO the coffee chain has ever had, other than Narasimhan, whose tenure lasted for about 18 months.\u00a0<\/p>\n\nFewer orders<\/h2>\n
Slow-Drip Service<\/h2>\n
China Strategy<\/h2>\n
Worker Morale<\/h2>\n
The Schultz Effect<\/h2>\n