The American café chain is losing more and more customers in the USA and China. An activist investor wants to revive Starbucks. The change of management is already being well received on the stock market.
Starbucks is struggling with declining sales in its key markets.
Many customers like Starbucks because they can spend hours in the American chain’s cafes, sipping on their vanilla latte. The company’s bosses are not granted that much time: anyone who doesn’t deliver has to leave quickly.
CEO Laxman Narasimhan, Starbucks’ first external boss, is being replaced after just over a year at the helm. He will be replaced by Brian Niccol, who has led the popular Mexican-inspired fast-food chain Chipotle since 2018. The change was announced on Tuesday.
The stock market reacted very positively to the news. After trading began, Starbucks shares were already more than 20 percent higher than the previous day’s level. Chipotle shares, on the other hand, fell by more than 10 percent – investors were apparently satisfied with Niccol’s work.
Customers are running away
The change of management comes abruptly, but not entirely unexpectedly. Starbucks is struggling on several fronts. In the US, the number of customer transactions recently fell by 6 percent compared to the previous year; even more expensive orders could not prevent a 2 percent drop in sales in the spring quarter.
During the difficult pandemic years, Starbucks had done very well in comparison. However, the company had a hard time returning to the new normal. Under long-time CEO Howard Schulz, Starbucks had focused primarily on those customers who wanted to spend a few hours in a “third place,” i.e. outside of their home and office.
Today, customers order in advance via app and want to pick up their drink on time in the store or at the drive-through. However, complicated orders and processes have recently often led to queues in the busiest morning hours; this deters occasional customers in particular.
New old competition from China
Things are even worse in China, Starbucks’ second most important market. The country is in an economic downturn due to long-standing problems in the real estate market, and the Chinese are holding back on non-essential purchases.
Apparently, Java Chip Frappuccinos are also part of this: In China, Starbucks’ sales actually fell by 14 percent year-on-year. Starbucks is also battling tough competition in the Middle Kingdom, led by the local chain Luckin Coffee.
Because 60 percent of Starbucks stores are located in the USA and China, the figures for the entire group are also poor.
Activists march in
In addition, the laws of the US market are similar to those of nature: the weakest member of the herd is attacked by the predators. In Starbucks’ case, this is the activist investor Elliott Investment Management. A few weeks ago, as the Wall Street Journal reported at the time, the investor secured a significant share position in Starbucks and is now pushing for changes at the top. According to the Wall Street Journal, a second activist has also recently secured a larger stake in Starbucks.
The new strong man at Starbucks is Brian Niccol – a proven fast food expert who also takes on the role of CEO and president of the company. Before Niccol led Chipotle, he had already taken care of the development of Pizza Hut and Taco Bell, two other well-known fast food chains that belong to the same group, Yum Brands.
Chipotle has continued to grow under Niccol, although the high inflation of recent years has put pressure on the business of all fast-food chains. Chipotle’s competitors have struggled to attract Americans to their restaurants. Now investors are hoping that Brian Niccol can repeat this feat with Starbucks.