The pumpkin spice latte isn’t the only hot arrival at Starbucks this fall. The company is bringing in a new CEO to oversee grand ambitions to modernize its espresso-slinging business.
What happened: Laxman Narasimhan, a former PepsiCo exec, will take over for three-time CEO Howard Schultz in April after spending a few months with the company to learn about its reinvention plans.
The leadership change comes at a time of transition for Starbucks. Its sales have rebounded since a pandemic drop-off, but net income fell 21% year-over-year last quarter as the company faced serious challenges.
- Exploding production costs, increased turnover rates, difficulties expanding in markets like the UK, and lockdowns in China (its second-largest market) all cut into profits.
Another major issue is outdated spaces and equipment that make it tough to meet growing consumer demand for complicated and cold drinks (it’s not easy to whip up those Quad Venti White Mocha Frappuccinos).
- Starbucks offers over 170,000 different drink variations, and while workers are expected to make them in less than 50 seconds, many of them can take three minutes or more to put together, per The Wall Street Journal.
- That’s creating frustrating wait times for customers and less-than-ideal work conditions for employees (and tailwinds for the rapidly-expanding Starbucks unionization movement).
But fixing those issues won’t come cheap: Starbucks will likely have to redesign its (many) stores and invest in expensive new equipment.
Bottom line: Starbucks made its name as an innovator in the North American coffee business and will now have to reinvent itself again to continue owning the space.