Starbucks CEO’s Confusion

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24/7 Wall St. Insights

• The new Starbucks Corp. ( NASDAQ: SBUX ) CEO has revealed his turnaround plans.
• Does he understand what he's in for?
• Also: 2 Dividend Legends to Hold Forever .

New Starbucks Corp. ( NASDAQ: SBUX ) superstar CEO, Brian Niccol revealed his turnaround plans in a brief letter. Among the first comments is that he would focus on the company's home market, the United States. He wrote that the answer to the troubles at Starbucks is better service at its stores. All he did was point out the problems the company has had for years. And his plans were vague, as they would have to be for any CEO who has been in office just a few days. He might have waited to make comments with more experience behind them.

What's in the Plan?

Empowering baristas, telling the Starbucks story, and more.

Niccol described Starbucks as “beloved.” However, using that as a foundation to fix some of the company’s problems is misplaced, given the present poor service and overworked store staff.

Next, he wants to “empower” baristas, the stores’ primary staff. It is as if these people could not make these decisions about service in the past based on crowds, online orders, and the pace at which they can prepare meals. At the very least, it insults frontline Starbucks workers.

Niccol wants workers to “get the mornings right.” In overcrowded stores with tight preparation areas, the likely solution is larger prep areas and more baristas. Niccol did not discuss better staffing stores.

Next, Niccol wants to reestablish Starbucks as a “community coffee house.” Many Starbucks locations have the seating room to do that, but poor service makes it unlikely that customers will stay, no matter how well the stores are laid out.

Finally, “tell people our story.” That means the local staff needs to promote Starbucks service and refer to its past. At some point, Starbucks was a better place for people to go for food and coffee. That is no longer the case, as same-store sales in the United States show.

What Comes Next?

Does Niccol understand what he's in for?

Niccol needs to understand that he does not understand the points. To better serve more customers, Starbucks needs more staff with more room to prepare coffee and food. This means an investment, perhaps in the hundreds of millions of dollars. Without those things, his plan is no better than those that have undermined Starbucks revenue recently.

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