On this week’s episode of Fortune‘s Leadership Next podcast, co-hosts Alan Murray and Michal Lev-Ram talk with Laxman Narasimhan, the CEO of Starbucks. Narasimhan explains how his six-month immersion in stores around the world convinced him Starbucks cafes are ripe for human connection, and how he plans to balance this emphasis on connection with shareholder returns.
He also shares more details about Starbucks's upcoming growth plan and why this is the right time to open thousands of new stores around the world. Additionally, Narasimhan gives his take on the state of Chinese and Western relations and how they affect Starbucks's business. We also hear about how his personal story of growing up in India impacts his approach to leadership.
Listen to the episode or read the full transcript below.
Transcript:
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Alan Murray: Leadership Next is powered by the folks at Deloitte, who, like me, are exploring the changing rules of business leadership and how CEOs are navigating this change.
Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Alan Murray.
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Michal Lev-Ram: And I’m Michal Lev-Ram. Alan, I am dialing in from the West Coast, as you know, and I'm enviously looking at you sitting live and in the studio with this week's Leadership Next guest. And what's very cool about today's guest, one of the things that's cool about him is that he's not just a newly appointed CEO of a Fortune 500 company. He is also a newly certified barista. Very exciting. We're gonna keep our audience in suspense for just a little bit longer though. Before we introduce today's guest, Alan, very important question for you: When you walk into a coffee shop, not going to say the name of the coffee shop. What do you order?
Murray: I order a grande skim latte. I used to get almond milk, but the almond milk was too sweet. So I moved back to skim milk. What do you order?
Lev-Ram: I am a just black coffee no matter where I am kind of person. So, none of the fancy stuff, and no pumpkin spice lattes for me. So go ahead do your intro. I gave it away.
Murray: You mainline the caffeine. Well, we have the caffeine man with us here today. We have the CEO of Starbucks, Laxman Narasimhan. Laxman, thank you so much for being here. You've been in the job for six months. But where I'd like to start is that before that you did a six-month immersion. Tell us what that means, what it was like and why you did it.
Laxman Nirasimhan: So when Howard, Mellody, and I were talking about my entry to the company—
Murray: Mellody Hobson, the chairman of the board—
Nirasimhan: So Howard Schultz, Mellody Hobson, and I were talking about my entry into the company. The fourth was very much to really immerse myself in the business, understand the culture, understand it from a partner's lens, and also get, you know, really good at coffee, which I love drinking, but I just grew to realize…
Murray: What is your drink, by the way?
Narasimhan: My drink is a doppio Macchiato with some hot milk on the side. You have to try the pumpkin spice martini, which is quite incredible.
Lev-Ram: Oh, okay, now you're talking.
Laxman Nirasimhan: Now I’m really talking. So you know, you can maybe do a bit of a twist.
Murray: I'm gonna save my question about the oleato until later. But keep going. Tell us—this is fascinating that you actually became a barista.
Narasimhan: Yeah, I think the idea very much and, you know, designed with Harvard, was that I would really spend time in stores and become a certified barista, which is what I did. I worked in stores across the U.S., working in stores in Europe, in Mexico, as well as in China and Japan. And it gave me a real lens into what it meant to be a partner at the company.
Murray: But now a lot of people would say this is crazy, right? I mean, it's like, why, you should be somewhere, studying the books, looking at the finances, and you're actually in the store. That's a different approach to leadership training—explain why you did it.
Nirasimhan: Our brand is delivered through our partners. And because the brand is delivered through our partners, the best way to experience the brand is to be with the partners. Now in terms of the duration of length of time, you know, people will say you're a sitting CEO, why would you give that up and go and be that? And somebody even asked me this question, why was your training six months long? And I said, that's a very Western way of phrasing the question, right? Because if you were Eastern, you would ask the question, why was it only six months? And so I learned a lot. I think it was a really good push from both Howard and Mellody that I would do that.
Murray: Can you just go one step further and talk a little bit about what you mean by Eastern, and about your upbringing and how that affects the way you approach leadership before I turn it over to Michal, who is bursting with questions about new forms of coffee that she can start drinking.
Nirasimhan: No, I think, you know, I came to this country from India. I came here as a migrant, or an immigrant. You know, two suitcases, $7,700 And because I'm Asian, a pressure cooker, because my mom thought I wouldn't need much here. And from there, I've gone on this journey, you know, graduating from Penn and Wharton and Lauder. We speak German, and did the German program there. I've been to many places today. We're in our 25th home in 30 years of marriage.
And so, but I've learned a lot about you know, leading in that sense. I think to me, you know, there's a relentless curiosity about leadership. And I think the more I've learned, the more I realize, the less I know. So, you know, really important to learn a ton, but also learn how to unlearn. And that has meant actually a lot of meditation around, what do we give up versus what do we keep…editing is a big part of how I think about it. So there's a relentless curiosity, then, you know, I've learned being the only child, only surviving child of three, I've learned people really matter. And as I've gone through life, I've become a people collector. So I've extended networks of people that I've actually worked with, stayed in touch with, studied with, and so on. I've lived in so many different parts of the world, I see patterns, but also having been exposed to many contexts, be it in Guatemala, when I was running, you know, the CEO of Latin America for Pepsi, or in China, or in Japan or in Europe—pattern recognition is a big part of my leadership. The fourth is resilience and grit. I mean, I've had many terrible things happen to me, you know, in my life, personally. But I think it's really built in me to sort of win from within mentality. And the last thing is a sense of renewal. In every five to seven years, I've done something different. McKinsey, was there for 19 years. I had three careers there. So I think renewal has been a very big source of energy, new learning for me. And, you know, I've trained for this job for 30 years without knowing it.
Lev-Ram: I want to ask you a bit more about the takeaways from this six-month immersion. And obviously, in a lot of what you're saying right now, as well about your own life experience. We can really hear sort of the human and the human connection aspect and how strong that is. But one of the things you said to the company, one of your first public communications as CEO, was a detail of your takeaways. And the top one was really that Starbucks is in the business of human connection. And you reveal the new mission statement that with every cup of coffee, you nurture the possibility of human connection. Can you talk a little bit about why you chose to go with this? Why is Starbucks so ripe for human connection? Why does that matter today, especially?
Nirasimhan: You know, Michal, I was in a store in Beverly, outside of Chicago, the Southside of Chicago, and I hadn't drink it—was an order, and I was gonna hand it out through the drive-thru window, and a woman pulls up, drops the window, and I look at her face is half made up with the makeup box in front of her. And she's looking at me with a mix of, you know, anxiety, as well as anticipation as to this beverage that we had crafted for her. And when I gave it to her, I saw, you know, a different sense of, I would say, comfort calm that came into her. And it takes me back to what I do first thing in the morning, when I have a cup of coffee, I look for my moment of zen, I look for a moment of actually connecting with myself. And even though she was in the drive thru, she was connecting with herself. Now we've talked about this notion of a third place, about you connecting with others. And you bring those two ideas together. At the end of the day, what we do with coffee, whether it's in our stores, whether it's at home, whether it's in a drive thru, whether it's in a cafe, we help folks connect with themselves in order for them to connect with others. And we are really, and I've always said, we are in the business of human connection. Now our mission statement didn't really have the word human connection in it. It had words, which are beautiful, and really served wonderfully for us. Words that inspire and nurture the human spirit, one cup, one person, one neighborhood at a time, but it had been written before the iPhone came in. And there were two things that happened. One is, we thought we'd bring human connection into the mission. And the second thing is that we would give agency to our baristas, because of every single action leads to a higher-order purpose for them. And this was developed in close coordination input from hundreds of partners from around the world. And what we ended up doing was we ended up with this mission, which was with every cup, with every conversation with every community, we nurture the limitless possibilities of human connection. And as you see in my arms, it's a bit of an outward motion, in terms of what we do.
What it did for people was it also said, we're a business that's digital. So the conversation is both physical as well as digital. Neighborhood is clearly an important locus for us. But given what we do with digital, we are connected to the communities around the world. So that's how we actually in some ways, contemporized the mission and brought that in. But what I realized is that, as I've looked through the windows of our stores, working there and talking with our partners, there is truly a crisis of loneliness, and there is a need for human connection. There have been many customers I've seen come in, who frankly may not have spoken to a lot of people, but they need that kind of connection. I was working in a hospital store where my mother was in hospital a few weeks ago, quite ill. And in the hospital store run by actually a social worker at Starbucks was the store manager, I got to see fathers were excited about the baby that was born overnight, or I got to see people who were patients come into the store anxious about the tests that they were going to have. Or frankly, we saw people with loss. And they came to the store and found ways to connect with our store manager, Kelly, who is an amazing woman who runs that store. And with me, because I was there. So I think there is a need for us to really understand what's really going on in the world. And as I've looked at, through our stores, whether it's the U.S. or Europe, or Japan, where we have, you know, three senior citizens walk in, sit down with a cup of hot coffee—Michal, you would love that—you know, those people are all looking for connection.
Murray: But Laxman, how did the pandemic change that? I mean, in my mind, and in my experience, pre-pandemic, pre the kind of explosion of mobile orders, Starbucks was a place where people didn't go in and get a cup of coffee and sit and talk and interact. Then we had this pandemic, which was discouraging interaction, we're all doing mobile orders, the goal was to go in and get your coffee and get out as quickly as possible. And today, I have to say, I mean, I was at a Starbucks this morning, there were like 15 people kind of crowded around waiting for their mobile order, and not many people sitting in the store. So I'm wondering what your view is of the pandemic experience and how you recreate those kinds of human connections now that you've become sort of a mix of people trying to get mobile orders and get out of the store, and people trying to linger and have a conversation.
Nirasimhan: So first of all, we need to do better to ensure there isn't a line of 15 people, Alan, in the store that you're in. So clearly work that we're doing.
Murray: It was rush hour.
Nirasimhan: It was rush hour, of course, I can appreciate that, and we thank you for your business. What I will say though, is that the pandemic did, in fact, have quite an impact on consumers. And it did, in fact, have quite an impact on Starbucks. And we're still working our way through it. Having said that, that moment of interaction, even in a drive thru, where you are speaking with a barista is actually a moment of connection. The time when you do place the order you do pick it up, and we should do better at it in a systematic manner across a source, that moment of connection, sometimes is enough. You know, two-thirds of the people who are looking for food and beverage go to a store alone. And you know, they want to be part of a community, they want to obviously see that. And yes, there are people who come in digitally. But being digital doesn't mean you can't connect with folks, which is why conversation, there are things we're doing even digitally to connect with people. And so I think we're going tol in a lot of waysl see us reimagine what connection means in a world that's omnichannel and bring that to bear.
Lev-Ram: So another another wrinkle here or I guess, layer. In that same letter, we mentioned, you also promised your shareholders long-term returns, very natural thing to promise. Can you talk a little bit about how you balance that with this sort of purpose for connection for coffee to for Starbucks and coffee to mean so much more? You know, fighting loneliness and making that space for people? How do you balance that? I mean, does that coexist for you? Because ultimately, you guys sell coffee, you sell—by the way I should mention, mango dragonfruit refreshers. My daughters are very loyal Starbucks customers. And I spend a lot of money on those drinks, too. So talk about that, that balance, and whether you see those two coexisting.
Nirasimhan: I think the most distinctive brands in the world have a great set of functional benefits. They offer a great set of emotional benefits that actually link in a lot of ways to what the functional benefits are. But the truly distinctive brands, they also deliver an emotional, a spiritual benefit. And if I think a little bit about connection with yourself and what that means, you know, and how it elevates who you are, that's actually very good business. So the fact that we're doing this, the fact that we get the routine, the fact that people come to us often when they're looking for this, is in fact really good business. So I don't think that there's a trade off per se. What it does is the ability to deliver this consistently around the world helps us build ritual, helps us build up periodic visits, and that frequency and ends up in good business. And we appreciate your mango dragon food orders. Have you tried our mango dragon fruit, frozen?
Lev-Ram: Is there alcohol on it?
Nirasimhan: No, there's not. But you could do that at home if you want it and I won't look.
Murray: Michal, please!
Lev-Ram: I'm just asking for the mom version. That's all.
Nirasimhan: The mom version has to be done at home.
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Murray: Jason Girzadas, the CEO of Deloitte US is the sponsor of this podcast and joins me today. Welcome, Jason.
Jason Girzadas: Thank you, Alan. It's great to be here.
Murray: Jason, everyone in business is talking about AI. It clearly has the potential to dramatically disrupt almost every industry. But a lot of companies are struggling, what are some of the barriers that companies are facing in creating business value with AI?
Girzadas: Yea, Alan. AI is on every client's agenda, I think every CEO and board interaction and conversation that I'm a part of proves the fact that the promise of AI is widely held. And the hope is far and deep that it creates business value. But there's challenges to be sure, what we've seen is that the probability of success increases dramatically with strong executive sponsorship and leadership, there has to be a portfolio of investments around AI, as well as to link the business ownership with technology leadership to see the value of AI-related investments. Over time, we're optimistic and confident that the value will result. But it will be a portfolio where other short-term opportunities for automation, improvements around productivity and cost takeout, and then, longer term, medium-term opportunities for business model innovation that are truly transformational. So this is a classic case where it won't be a single approach that realizes value for AI
Murray: It sounds like you take it a step at a time.
Girzadas: I think it's definitely a time, and also a portfolio, recognizing that some investments will have short-term benefit, where you can see immediate use cases creating financial and business impact, but longer-term opportunities to really invent different customer experiences, different business models, and ultimately create longer-term benefit that we can't even fully appreciate at this point in time.
Murray: Jason, thanks for your perspective. And thanks for sponsoring Leadership Next. Thank you.
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Murray: So you were recently in China. China is a huge business for Starbucks, you've got more than 6,000 stores there. You were saying earlier, you're opening a couple a day. And yet we're also in a world where geopolitics is becoming much more pronounced. There's some tension between China and the Western world. How do you think about that? How does it affect your business, if at all?
Nirasimhan: Our business in China is known as Xing Ba Ke, which is the Chinese name for Starbucks. And it's a business that's been built over the last 24 years. Howard, when he went to China, it was a brilliant vision to say, I'm going to China in order to build the specialty coffee industry there. And, you know, I was there recently, as you said—with our local team, by the way. Our team is entirely local, right, like a lot of multinationals where you set people, and it's been built from the ground up by tremendous set of Chinese partners and leaders, so I feel really proud of them and honored to have them on our team. And when I went there, what I saw in front of me, there's amazing factories, the most advanced factory that we have. You know, LEED certified in a meeting every sort of green certification that you could think of, it's a vertically integrated operation, because we now grow coffee in Yunnan. And, you know, we have this roaster, roastery, that larger story that is actually roasting coffee for us in China, the ability for us to deliver freshness and quality is much better as a consequence of it.
But what I saw there was truly a manifestation of the dream Howard had when he went to China, manifestation of the dream, you know, with this amazing factory. But what it also was, is a statement of our ambition. China is 10% of our business, and it's growing. Clearly the U.S., in fact, the biggest part of our business. We also have a lot of opportunities in markets other than China in the U.S., in fact, you'll see us talk more about it. But back to China, we are opening a store every nine hours. And the reality is that we are building a bridge between two peoples in terms of coffee. Xing Ba Ke is a brand that the Chinese consumer loves. And we have an incredibly loyal set of consumers, the number of you know the frequency of loyal consumers is going up what the [inaudible] is going up to. And, you know, we're in the coffee business. And so we've had encouragement on both sides to ensure we keep this bridge going. But you know, at the end of the day, we're like a lot of consumer product companies. You know, we are out there delivering a brand delivering a service that Chinese consumers love.
Murray: And you clearly think it brings the world together, and the connections perhaps lead to peaceful outcomes. But the scenario that a lot of business leaders are playing through after Vladimir Putin's invasion of Ukraine is geez, what if this had been Xi Jinping marching into Taiwan? Would you then be McDonald's, you know, in a situation where you come under pressure to close or get rid of your Chinese operations? Have you thought about that? How do you think about that? What's your position on that?
Nirasimhan: We have no such plans. We have a real belief in the long-term potential of our business in China. We believe we are building bridges, over coffee. And I think the kinds of things that we do entirely fit into the life of the Chinese consumer. And we're committed to the long-term future that we have in China. We have no such plans.
Murray: You recently announced a pretty ambitious growth plan beyond China, as well, of course, and including in the U.S. Can you talk a little bit about what led to this announcement? Why this is good timing for you? I mean, we've seen Starbucks kind of, you know, expand and contract according to what's going on in the world and the economy, of course, but tell us a little bit about why you feel confident that this is the right time to expand in this way, in a pretty ambitious way. And where are the bright spots, where are the opportunities, including within the U.S.?
Nirasimhan: First of all, we just opened up 20,000 stores outside the U.S., we have about 16,000, plus stores in the U.S., 20,000. Now outside, if you look at the whitespace opportunities, there were many. They range from continental Europe, to Europe, to the Middle East, to Africa, to India, to Indonesia, to Latin America. You know, we opened our 668th store in Beijing, and our 400th store in … Hanjro. And we have 325 stores in India. So when you start looking at the dimensionality of what I'm talking about here, including Latin America, we have 225 stores in Brazil, 800 in Mexico, and you know, whitespace opportunities pretty much everywhere, including in the U.S. In the U.S., if I look at Manhattan, or I look even, at sort of—and I've had a lot of feedback here as well saying, hey, we'd love, you know, more pickup options, you know, help us deliver what we want in places that, you know, we want coffee, and you have a Starbucks nearby. If I look at second-tier, and even third-tier cities in the U.S., a lot of growth coming in the south and southeast, there are whitespaces everywhere. And so we haven't fully tapped into the full set of store opportunities in here.
The announcement we made is actually part of our earnings call. But we talked a little bit about our legs, you know, our priorities, one being to elevate the brand, which I can touch on more if you'd like. The second is to get strength and scale digital. But the third is to get more truly global. And we see the global opportunity is real for us. The unit economics of the stores are great. And it's an opportunity for us to ensure that with our geographical partners of which we have, you know, several, we have the ability to truly fulfill the need that we see in those markets with a brand that's really powerful. That has range and that travels. Because, back to this notion of human connection, what I see working in the stores internationally, too. The need for human connection is a global need.
Murray: I see you're wearing an aura ring.
Nirasimhan: Yes, as am I. I like your color, though.
Murray: Thank you, we can trade. It's helpful in tracking sleep. So I have to ask you a really important question, which is how many of those doppio Macchiato with milk on the side drinks can you drink in a day? And when do you stop?
Nirasimhan: I stop at two o'clock.
Murray: Two o'clock is the last one o'clock… So, when I say ,how many do you cram in before two o’clock?
Nirasimhan: You know, we have a wonderful range of teas, Alan. We have a range of teas that you're going to love. Michal, you'd love it too. And you know, we have some wonderful relaxing teas that I know you would love. But I stop at two o'clock, and I don't normally have more than four.
Murray: Four’s a lot, particularly if they're doppios.
Narasimhan: That is two doppios, each has four shots, four shots.
Murray: Okay, good. Michal. I know you have a final question.
Lev-Ram: Well, have we gotten to oleato yet?
Murray: Oh, we have to talk about oleato.
Lev-Ram: I kind of feel like we need to please explain to the world, what is an oleato?
Nirasimhan: Okay. The oleato is a manifestation of the genius of Howard Schultz in terms of a creative idea of going back to Italy, going to Sicily in this particular case, and actually combining, you know, two things that Mediterraneans love. One is clearly coffee, and the other is olive oil, and bringing that together. And I remember the first time he showed it to us, and, you know, we wondered about it, and then we tasted it, and it was actually distinctive. It's a tremendous combination of the two. I'd like you to encourage you to try our golden fog, it is an innovation by our customers. The vegan olive oil made it a special customization that goes on top of the drink. It brings a very silky feel as you drink the coffee. And it's great for folks.
Murray: I like it. I can't believe I made it this far in life without having tried it.
Laxman Nirasimhan: Alan, just think about it. You'd look so much younger if you'd had it.
Murray: Michal! Why are you laughing so much?
Nirasimhan: That was too close for comfort.
Lev-Ram: I just I don't have any words to say. No, I do have a real final question though. So as you're sipping this oleato, what book are you reading? We've been asking everybody we interview. What's a book that you read recently that really resonated, that left an impact, and that you would recommend?
Nirasimhan: So the book I'm reading is a book that is based in India, and it's a time of the Opium Wars. And it's a book that's known as The Covenant of Water, and it's by Abraham Verghese. It's a tremendous book. I'm taking my time reading it given all the travel that I've had, but I'd highly recommend it .
Murray: Good, I'll put it on my list. Laxman Narasimhan, thank you so much for this conversation, really interesting. I'm gonna go find that oleato somewhere. I'm sure I can find it somewhere in Manhattan.
Nirasimhan: You can! You go to our roasteries, and you'll have it, and just ensure that you try all three of them. We have a hot version, we have a cold version, and we have one that could even be spiked, just for you.
Murray: Thank you so much.
Lev-Ram: Thank you so much.
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