Does Starbucks Still Have More Upside Potential? Howard: We Don't Want to Run a Business with an Aging Customer Base

Starbucks' Challenging Year: Leadership Changes and Strategic Shifts

This year has been quite turbulent for Starbucks. Before interim CEO Howard Schultz's return, both Starbucks' internal operations and external business faced various problems to different degrees. Coupled with the economic impact of the pandemic, Starbucks stock has shown a continuous declining trend since January of this year.

It wasn't until this April, after Howard Schultz returned to take on the role of interim CEO, making adjustments and changes to some long-standing but unresolved issues, that Starbucks stock began to recover. Since mid-June, the stock has regained approximately 25% in value, with slow but steady growth.

However, despite this recovery, many financial reports indicate that Starbucks remains one of the worst-performing multinational chain restaurant operators on Wall Street this year. Just a few days ago (August 2nd local time), Starbucks' third-quarter financial report showed that despite price increases implemented last year due to rising costs, sales in North America still showed an upward trend.

Although the financial statements suggest that Starbucks' worst period may be over, sales in its second-largest market, China, are declining, and there are still many unresolved issues in its largest market, the United States.

Leadership Challenges and Store Operations

Some American industry analysts suggest that despite recent rebounds, considering the numerous uncertainties in many of Starbucks' directly-operated stores, the company's upward potential remains limited. The biggest issues include management uncertainty, labor disputes, and the ongoing direction of the pandemic's development.

To ensure better future development for Starbucks, Howard has been visiting stores and roasting plants across the United States since his return in April, understanding the sales and operations of physical stores. Although sales performance has improved, store issues cannot be ignored.

For example, store designs no longer meet current consumer demands, making it impossible to retain customers through environment and service to the fullest extent. After the pandemic, they also failed to adapt to changing customer needs and attract more new, younger customers.

Therefore, on his first day back, he first halted the stock repurchase plan and invested this money in partners (employees). He then reshuffled part of the company's management team and attempted to weaken unionization efforts in the United States, but currently remains in a difficult situation, with issues not yet resolved to both parties' satisfaction.

Controversial Policy Changes

Next came the announcement to close all Starbucks store restrooms to public use. Although still available to paying customers, some consumers are more sensitive to spending during the current period of severe inflation. Therefore, despite still being provided to customers who have made purchases, many customers are dissatisfied with the current consumer experience, leading to the loss of many patrons.

Despite this, Howard has insisted on keeping restrooms closed. Media analysis suggests that while Starbucks providing restrooms might attract new customers, it doesn't bring many loyal customers. Additionally, many hygiene and safety issues cannot be resolved, so closing them helps with Starbucks' future development.

Cultural Transformation and Future Strategy

Besides these changes, Howard also stated last month that he would reshape Starbucks' corporate culture, indicating a series of changes including redefining the relationship between the company and employees, improving store partner benefits, and providing new in-store experiences for customers. Howard has already detailed plans for "redefining partner relationships," with other initiatives to be announced on September 13th of this year.

Regarding the current strong consumer demand for cold beverages, Starbucks' beverage R&D department has been working hard to develop more innovative cold drinks and will gradually update store equipment for making cold beverages. Howard expressed that he is very concerned about Starbucks' connection with young people, and changes in Starbucks' consumer demographics are one of the indicators he pays attention to understanding each year. He also stated that Starbucks doesn't want to operate a business with an aging customer base, so changes need to be made now.

Conclusion

In summary, Starbucks will continue to face a challenging business environment. If it cannot quickly resolve current various issues, its upward potential will be limited.

Image source: Internet InvestingPro

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