It’s not been a great month for Starbucks. On May 1, the international coffee chain’s shares fell 15% to their lowest in two years as the industry experiences what current CEO Laxman Laxman Narasimhan calls "a highly challenged environment." Starbucks also reported its first quarterly sales decline since 2020, as well as lower-than-expected earnings and same-store sales growth.
Amid the early days of the pandemic, economic experts predicted that it would be a tough road to sustained profitability for coffee chains as many purchases were baked into customers' commutes; this became especially true once the number of people primarily working from home tripled from roughly 9 million to over 27 million.
However, Starbucks is facing several additional complicating factors that seem to be reflected in this quarter’s numbers: boycotts, new competitors and, perhaps the most influential, a public comment from ex-CEO Howard Schultz indicating he wasn’t confident in the chain’s current strategy and leadership.
As the Washington Post reported in early March, Starbucks became embroiled in boycott calls on TikTok after it sued Workers United, a union of Starbucks employees, for trademark infringement “over a since-deleted social media post from the union’s account that retweeted an image of a bulldozer breaking through the barrier between Israel and Gaza. The post added the comment, ‘Solidarity with Palestine!’”
The company described the post as “reckless and reprehensible.” In response, the union countersued, which only intensified calls for boycotts, which some analysts have correlated, at least partially, to the dip in Starbucks’ sales. Another contributing factor is the fact that there are simply more coffee chains cutting into Starbucks’ market share.
One of note is the Oregon-based Dutch Bros, which reported 10% same-store sales growth and positive traffic trends last quarter. In their assessment of the two coffee chains, National Restaurant News’ Joanna Fantozzi said that “beyond hard numbers, the two companies have recently taken very different operational strategies.”
“Whereas Starbucks has been constantly churning out new menu items with complex SKUs — including last year’s Oleato, which received very mixed reviews; this year’s lavender matcha latte; the spring lineup of “swicy” drinks; and most recently, the release of summer beverages with boba-like pearls — Dutch Bros’ menu innovation strategy has been more measured,” she wrote.
Fantozzi continued: “In comparison, Starbucks’ LTO release schedule is more frequent and feels more frantic. Some of the flavors and ingredients Starbucks is adding also seem to be more niche and add more complexity to operations, like olive oil, lavender, and proprietary chili powder mix in the ‘swicy’ lemonade Refreshers.”
Starbucks’ recent, aggressive introduction of new products, which will continue this summer with the release of the company’s first blue beverage and of boba pearls, is one of the many things former CEO Howard Schultz subtly criticized in a recent LinkedIn post addressing the company’s disappointing second quarter numbers.
“Over the past five days, I have been asked by people inside and outside the company for my thoughts on what should be done,” Schultz wrote. “I have emphasized that the company’s fix needs to begin at home: U.S. operations are the primary reason for the company’s fall from grace. The stores require a maniacal focus on the customer experience, through the eyes of a merchant. The answer does not lie in data, but in the stores.”
Schultz — who served as the chairman and chief executive officer of Starbucks from 1986 to 2000, from 2008 to 2017, and then interim CEO from 2022 to 2023 —clarified that he has had no formal role within the company since April 2023 and no longer serves on the board of directors, but said his love of “all those who wear ‘the cloth of the company’” knows no bounds.
“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. The go-to-market strategy needs to be overhauled and elevated with coffee-forward innovation that inspires partners, and creates differentiation in the marketplace, reinforcing the company’s premium position. Through it all, focus on being experiential, not transactional.”
It’s worth noting Starbucks’ current CEO Laxman Narasimhan, who assumed the role last spring, has been working a half-day shift once a month in one of the company’s stores to better understand its culture, but that didn’t seem to play into Schultz’ assessment of the company.
“There are no quick fixes,” Schultz wrote in his LinkedIn post. “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.”
Both mainstream and industry publications, from the Wall Street Journal (with the story “Howard Schultz Is Back-Seat Driving Starbucks. That's a Problem for His Successor”) to PR Daily, have commented on the impact of Schultz’ post.
“The overall situation is awkward for current CEO Laxman Narasimhan, who Schultz helped to recruit,” PR Daily’s editor-in-chief Allison Carter wrote. “But overall, it’s Schultz who comes off the worst here, publicly backseat driving under the guise of thought leadership. If he wants to communicate with Starbucks leadership, he certainly has the means to do so. But public criticism of a former employer rarely reflects well.”
In the two weeks since Starbucks’ quarterly numbers were released, which were punctuated by Schultz’s post, financial experts and analysts have been debating the severity of Starbucks’ current financial issues. As Reuter’s reported, Deutsche Bank downgraded its rating on Starbucks to "hold" from "buy,” while at least 12 brokerages cut target price on the stock.
"The inability to stop the traffic leakage from the early signs of pull-back in November to date and the worsening macro and competitive dynamics in China may suggest prolonged challenges and no evidence of light at the end of the tunnel," Danilo Gargiulo, senior analyst at Bernstein, told the publication.
