Starbucks’ Leadership Shift
On August 13, 2024 Starbucks announced the appointment of Brian Niccol, the former CEO of Chipotle, as its new leader, replacing Laxman Narasimhan. This change, effective September 2024, comes after a turbulent period marked by declining sales and pressure from activist investors like Elliott Investment Management.
Narasimhan’s tenure, which began in March 2023, faced significant challenges, including a lack of innovation and growing dissatisfaction among customers and investors. Howard Schultz, Starbucks’ former CEO and a major shareholder, has been a vocal critic of the company’s recent strategies. Schultz stressed that Starbucks’ success has always been rooted in its commitment to the customer experience. “The answer does not lie in data, but in the stores,” Schultz declared.
In a LinkedIn post in May 2024, the longtime former CEO wrote that Starbucks needed to focus on customer experience and fix its stores and mobile app to reverse its fall from grace and reinforce its premium position. “Focus on being experiential, not transactional,” Schultz wrote.
Customer Value
Customer value, as measured by customer satisfaction directly impacts a company’s bottom line. The American Customer Satisfaction Index (ACSI) serves as a reliable measure of how well companies like Starbucks are meeting customer expectations.
For Starbucks, the ACSI scores over the past decade tell a story of gradual decline—from a high of 80 in 2013 to a stable yet unimproved 78 in recent years. In contrast, Dunkin’ has held its ACSI steady at 77 (see Figure 1).
FIGURE 1
Customer Satisfaction (ACSI) Score for Starbucks and Dunkin’
It’s also useful to compare the pricing strategies of Starbucks and Dunkin’ (see Figure 2). Starbucks, a premium brand, has hovered around $3-5. Dunkin’, a value brand, has hovered between $2-3. The trends in customer satisfaction and pricing imply declining customer value for Starbucks relative to Dunkin’.
FIGURE 2
Average Coffee Price Paid for Starbucks and Dunkin’
The Road Ahead: Customer Focus as a Key Strategy
For Starbucks, the path forward must include a relentless focus on increasing customer satisfaction to levels that are commensurate with its premium price. Dunkin’, with its more affordable pricing strategy and comparable and steady satisfaction scores offers compelling value to customers.
To remain competitive, Starbucks must not only innovate but also return to its roots—focusing on the biggest drivers of customer value: in-store experience, quality of service, and product excellence. To be sure, this focus must embrace technology and the importance of online ordering and drive through—two customer behavior staples since the onset of Covid.
Niccol’s track record at Chipotle suggests that he understands the importance of these elements. His challenge now will be to apply these lessons to Starbucks, reinvigorating the brand and reconnecting with its customer base.
References:
- “Starbucks CEO Laxman Narasimhan Replaced by Chipotle’s Brian Niccol.” Yahoo Finance, August 13, 2024. https://finance.yahoo.com/news/starbucks-ceo-laxman-narasimhan-replaced-by-chipotle’s-brian-niccol.
- “Starbucks Forces Out CEO, Brings in Chipotle’s Brian Niccol.” AOL News, August 13, 2024. https://www.aol.com/news/starbucks-forces-out-ceo-brings-chipotle-brian-niccol.
- “Starbucks Stock Soars After It Ousts CEO Narasimhan, Names Chipotle Chief Brian Niccol.” CBS News, August 13, 2024. https://www.cbsnews.com/news/starbucks-stock-soars-after-it-ousts-ceo-narasimhan-names-chipotle-chief-brian-niccol.
- “Starbucks Ousts CEO, Names Chipotle Boss as Replacement.” Bloomberg, August 13, 2024. https://www.bloomberg.com/news/articles/2024-08-13/starbucks-ousts-ceo-names-chipotle-boss-as-replacement.
- American Customer Satisfaction Index. “The American Customer Satisfaction Index Edges Up Again.” Business Wire, April 2023. https://www.businesswire.com/news/home/20230420005678/en/The-American-Customer-Satisfaction-Index-Edges-Up-Again.
- The American Customer Satisfaction Index. “Fast Food Restaurants | The American Customer Satisfaction Index.” Accessed August 2024. https://theacsi.org/news-and-resources/fast-food-restaurants.
- Post-Journal. “Former Starbucks CEO Howard Schultz Says Company Needs to Refocus on Coffee as Sales Struggle.” April 2024. https://www.post-journal.com/news/business/2024/04/former-starbucks-ceo-howard-schultz-says-company-needs-to-refocus-on-coffee-as-sales-struggle/.
- Investopedia. “Starbucks vs. Dunkin’: What’s the Difference?” October 2022. https://www.investopedia.com/articles/investing/091715/starbucks-vs-dunkin-whats-difference.asp.
- CoffeeTalk. “Coffee Prices Compared: Is Starbucks Really More Expensive Than Dunkin’ and Caribou?” October 2022. https://coffeetalk.com/ctmagazine/10-2022/80780/.