Starbucks CEO aims to improve employee relationship after years of struggles
11/18/2024 22:47
CEO Brian Niccol aims to brew up the perfect blend, quality coffee and opportunity.
Starbucks (SBUX) is trying to brew up a new chapter with its baristas as the coffee giant attempts a wider turnaround in its business and stock price under new CEO Brian Niccol.
It has been nearly three years — and four CEOs — since the union labor movement rocked the business and a Starbucks in Buffalo won its vote to unionize, a first for the company. As of early November, there are 515 stores represented by Workers United out of nearly 17,000 US locations.
Once a leader in worker benefits, Starbucks was accused of "short staffing and unpredictable scheduling; low wages; unaffordable healthcare; harassment; broken equipment; unfair discipline" by Workers United.
Starbucks' problems have been taking a toll. Its limited-time offerings didn't succeed, and its value perception weakened. US and North American same-store sales dropped 6% in its latest quarter, while adjusted earnings per share plunged 24%.
Year to date, the stock is up only 3%, compared to 23% for the S&P 500 (^GSPC).
Starbucks shares trade on a trailing 12-month price-to-sales ratio of 3 times, below that of fellow coffee purveyors McDonald's (MCD), at 8 times, and Dutch Bros (BROS), at 3.7 times, according to Yahoo Finance's stock comparison tool.
At Niccol's former employer, Chipotle (CMG), which is seen as more employee-friendly, shares are up 31% this year.
BTIG analyst Peter Saleh said investors are focused on Starbucks solidifying solutions to free up baristas, improve a hectic environment, and get the equipment needed to efficiently execute a complex menu.
"So long as their wages are competitive, ... their benefits are in line, much better than the industry ... and they provide some of the things that Brian's already doing, which is trying to make [a barista's] life a little bit easier," Saleh told Yahoo Finance.
Niccol said the team has made progress toward alleviating key complaints from workers.
The former Taco Bell chief is adding staff at 3,000 stores to see if it helps during the morning rush while finding the "right algorithm" to support mobile and drive-through orders.
Store crews want to "get back to making great coffee, make it easy for our customers to get coffee, [and] make it easy for us to move the products between mobile order and in-cafe," Niccol exclusively told Yahoo Finance (video above) about the feedback he got when visiting cafes after joining the coffee chain in September.
He's also prioritizing the Siren Craft System, a series of equipment and process improvements introduced under ousted CEO Laxman Narasimhan in September 2022. Narasimhan had planned for 10% of US locations to have the full suite by the end of 2024.
The system is intended to improve employees' working experience and customer wait times, but Narasimhan didn't "double down and roll it out," Saleh said. As sales fell, Wall Street grew impatient.
"The Siren system, which has been put on the back burner by Laxman, is now being put on the front burner ... by Brian," Saleh said.
Starbucks baristas have long complained about increasingly complex drink menus clogging up the process and leaving customers waiting. On Starbucks' latest earnings call, Niccol said, "Part of the reason why I think we've zigged and zagged on that Siren Craft System is because we didn't have clarity on what problem we were trying to solve."
He identified bottlenecks including warming food in the oven, making cold beverages, and fulfilling digital orders through four channels — in-cafe, mobile order and pay, drive-through, and delivery.
If a "store requires a full Siren Craft System, put it in. If it requires some pieces of it, put that in. If it just requires staffing and better deployment, we'll implement that," he said of his approach.
Niccol also told Yahoo Finance he's working to improve the career roadmap for employees, though no details were shared. "It's important to get to this 90% promote within," Niccol said. He made a similar move at Chipotle.
Starbucks plans to have 55,000 locations worldwide by 2030, so solving worker issues is mission-critical. Today, there are 40,199 stores in operation.
Investing in employees is crucial to boosting financial results experts say, along with improving in-store experience and service speed. Niccol had set a goal of fulfilling each drink order in four minutes or less.
"Restaurants with the least amount of turnover ... from the manager on down to the hourly employees, perform the best in terms of same-store sales growth," Saleh said. "When you have less turnover, there's less investment or spend on training ... your margins tend to improve."
Meanwhile, unionization talks have gone on behind closed doors after the two parties agreed on a path forward in February.
"We continue to make significant progress at the bargaining table where we are addressing issues like staffing, pay," bargaining delegate and 14-year barista Michelle Eisen told Yahoo Finance. Baristas' voices are "critical" to Starbucks’ success in rebuilding, she noted.
When asked about Niccol, Eisen said it's "great" that Starbucks is "investing in leadership," but she added that "now they need to invest in workers all the way down."
When Yahoo Finance asked Niccol about his thoughts on unionization efforts in recent years, he avoided answering the subject.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].