Former CEO Howard Schultz says Starbucks needs to overhaul its customer experience

By Mike Murphy

After disappointing earnings, longtime CEO says coffee chain needs to focus on improving its U.S. operations

A week after Starbucks Corp. reported disappointing quarterly earnings and a gloomy annual forecast, its former chief executive said the coffee chain needs to own up to its mistakes and work harder to deliver a better experience for its customers.

In a LinkedIn post Sunday, Howard Schultz, who served as CEO for three stretches, said Starbucks (SBUX) needs "maniacal focus" to improve its operations.

"The company's fix needs to begin at home: U.S. operations are the primary reason for the company's fall from grace," he wrote. "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 noted that every company suffers earnings disappointments, but "It's not the miss that matters. It's what comes next. What's the diagnosis of the problem? What's the impact on morale? And what's the strategy to fix it?"

In its fiscal second-quarter earnings last Tuesday, Starbucks reported sinking comparable-store sales and declining foot traffic, particularly in the U.S. The company also slashed its revenue and profit outlook for the year, sending its shares down by double digits on Wednesday.

"Our performance this quarter was disappointing and did not meet our expectations," Chief Executive Laxman Narasimhan said on the company's earnings call Tuesday.

Schultz said that while there are "no quick fixes," Starbucks executives, including board members, "need to spend more time with those who wear the green apron," and that their top priority should be reinventing the mobile ordering and payment platform, "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," he said. "Through it all, focus on being experiential, not transactional."

Schultz led Starbucks from 1987 to 2000, again from 2008 to 2017, and a for final brief stretch from 2022 to early 2023. He's since given up his board seat and has no formal role with the company.

Starbucks shares have sunk 17% over the past five trading sessions, and are down 24% year to date, compared to the S&P 500's SPX fractional gain over the past five days and 7.5% gain this year.

-Mike Murphy

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05-05-24 2240ET

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