Howard Schultz has some suggestions to help boost Starbucks’ business.
The Seattle coffee giant saw shares sink more than 12% last week after missing analyst expectations for its most recent quarter.
Schultz, the former longtime CEO and chairman, penned a post on LinkedIn over the weekend, recommending that the company overhaul its go-to-market strategy and take a close look at mobile ordering, among other ideas.
“Senior leaders — including board members — need to spend more time with those who wear the green apron,” Schultz wrote. “One of their first actions should be to reinvent the mobile ordering and payment platform — which Starbucks pioneered — to once again make it the uplifting experience it was designed to be.”
Starbucks was an early leader in mobile order-ahead technology among food and beverage retailers, debuting the “Mobile Order & Pay” feature a decade ago within its smartphone app.
Starbucks said 31% of total transactions at U.S. company-operated stores were made via the app, as of March 31. That number was up 3% from the year-ago period, but flat from the previous quarter.
On an earnings call with analysts last week, Starbucks CEO Laxman Narasimhan said some customers using the mobile order-ahead feature put items into their cart but then didn’t complete the order due to long wait times and product unavailability. He said the company is working with Toyota Production Systems Support Center to help operational throughput, and is aiming to improve the accuracy of wait time estimates in the app.
It’s not clear how Schultz thinks Starbucks should adjust its mobile ordering strategy. But it may have less to do with the actual technology infrastructure, and more with the broader Starbucks experience.
In one response to Schultz’s post, Christine McHugh, a Seattle-based consultant and former Starbucks exec who spent 25 years at the company, pointed out how her local Starbucks store was recently remodeled to cater to mobile orders. From her response (editor’s note: POS is short for “Point of Sale”):
“Now when you walk in, you’re greeted by a sea of customers waiting at the handoff plane next to a digital board that lets them know the status of their order. This is at the front of the store. How impersonal and welcoming is that??? If you didn’t do a mobile order, you have to wade your way to the back of the store where it feels like the POS is shoved in a dark corner. And the furniture is now light and modern, feeling like it belongs in a downtown/urban office building vs a neighborhood filled with historical craftsman style homes. It’s totally incongruent. It feels slick and grab and go, not local. This is the ‘experience vs product’ company conflict on blatant display.”
Schultz famously championed the “third place” concept for Starbucks, the idea that the company’s coffee shops were a community gathering spot, away from home and work.
Indeed, in his post on LinkedIn, Schultz advised: “Through it all, focus on being experiential, not transactional.” He added: “The answer does not lie in data, but in the stores.”
Tech initiatives
Starbucks’ loyalty program is showing signs of a slowdown. There are now 32.8 million active members in the U.S., up from 30.8 million a year ago, but down from 34.3 million in the previous quarter. One analyst described the quarter-over-quarter decline in membership as “very rare.”
On the earnings call, Narasimhan said Starbucks will begin making its app available to anyone in July, broadening access beyond Starbucks Rewards members.
Narasimhan noted that mobile ordering will be “available in more places outside our app,” but didn’t provide additional details.
There will also be new exclusive in-app offers rolling out to customers this month.
Starbucks is investing $600 million over the next three years to “further digitize our stores and better target customers in more personalized ways,” Narasimhan said.
Starbucks has also been piloting a partnership with delivery giant Gopuff, using Starbucks-trained baristas inside Gopuff fulfilment centers for delivery orders between 5 p.m. and 5 a.m.
Narasimhan said sales doubled during the pilot. “Building off that success, we are aggressively pursuing options to build a $2 billion business over the next five years,” he said.
Starbucks’ delivery business doubled year-over-year in the most recent quarter.
Starbucks has been investing in its own AI technology, dubbed Deep Brew, for several years, dating back to the tenure of a prior CEO, Kevin Johnson, the longtime Microsoft executive and former Juniper Networks CEO.
No quick fixes
Starbucks reported global revenue of $8.6 billion in the quarter, down 2%. Shares are down more than 30% in the past 12 months.
“In a number of key markets, we continue to feel the impact of a more cautious consumer, particularly with our more occasional customer,” Narasimhan said on the call. “And a deteriorating economic outlook has weighed on customer traffic, an impact felt broadly across the industry.”
Schultz returned to the company in 2022 as interim CEO and handed the reins to Narasimhan, the former PepsiCo exec and CEO at Reckitt, last year.
“I no longer serve on the Starbucks board of directors, and I have had no formal role within the company since April 2023,” Schultz wrote on LinkedIn. “But my love of the company and all those who wear ‘the cloth of the company’ — the iconic green apron — knows no bounds.”
Schultz, who was CEO from 1986 to 2000, and again from 2008 to 2017, expressed confidence that Starbucks would see its China business rebound and said the company’s U.S. operations “are the primary reason for the company’s fall from grace.”
Schultz, still one of the company’s largest shareholders, hinted that any strategy shift at Starbucks starts with its culture.
“There are no quick fixes,” he wrote. “But the path forward should be what has guided the company over decades of financial success: Inspire your people, exceed the expectations of your customers, and let culture and servant leadership lead the way.”
