The New Starbucks CEO Seems To Stumble Out Of The Gate

Howard Schultz, left, turned over the reins of Starbucks to Kevin Johnson in March, 2017.

Howard Schultz, left, turned over the key to the “original” Starbucks store to new CEO Kevin Johnson in March, 2017.

It was a touching moment, the highlight of the Starbucks annual meeting in Seattle earlier this year: Howard Schultz, the charismatic driving force behind the company’s rise from quirky local chain to global coffee powerhouse, reached into his pocket and withdrew the key to the historic original Starbucks store on Pike Place. With a flourish, he passed it to his anointed successor as CEO, Kevin Johnson.

But, like so much of Starbucks these days, it was more theater than substance. The Pike Place store, which always has long lines of tourists outside, isn’t really the first Starbucks at all; the original location was a block north, in a building that was torn down years ago. And Starbucks today, despite all the outward trappings of success ($20 billion in revenue, 25,000 stores in 75 countries, 250,000 employees), the company faces complex challenges to its business model (from a tsunami of third-wave coffee shops, not to mention die-hard competitors like Dunkin Donuts), its product mix (from beverages to food), and, perhaps most threatening, to its vaunted corporate culture.

Now that Starbucks has lost its magnetic micro-manager in favor of the gregarious Johnson, you’d think the new guy would have a honeymoon period, at least. But no.

Johnson’s first major initiative, the North Star project, landed with a thud. One of the issues it addressed is the awkward congestion in the stores, an issue that mobile ordering was supposed to alleviate. Instead, it appears to have made things worse, with loyal customers prepaying their orders from their mobile devices only to wait around in the store for the baristas to make their drinks.

Not enough baristas? Orders too complicated? Fixing the menu is relatively easy, but hiring more workers is expensive, especially since Starbucks pays some of the industry’s top wages. The danger, Starbucks has found, are declines in both store traffic and in same-store sales growth.

The Starbucks response, under Johnson, was uncharacteristically authoritarian: wagging the corporate finger at the front-line baristas.

“Each manager was required to read verbatim about a half-hour of dicta blaming the baristas for all these problems,” one unidentified employee told Business Insider of the mandatory meetings.

For its part, the company sees the issue as “a fight for the heart and soul” of Starbucks. That would be the “customer experience” as defined by the relationship between the customer and the barista. 

But many employees are skeptical. They feel Starbucks is forcing baristas to take responsibility for customer-service problems caused by other issues (understaffed stores, increasing demand from mobile and drive-thru orders, time-intensive drinks). In the long pep-talk, Starbucks essentially ordered employees to find ways to improve the customer experience, or else quit the company.

The Starbucks culture has always been an (overly self-conscious) emphasis on the emotional connection between the company’s partners [employees] and its customers. “We are in the business of human connection,” Johnson told Business Insider in an interview earlier this year. 

A lot of the responsibility for the North Star initiative lies on the shoulders of Kris Engskov, a former investment banker who joined Starbucks 15 years ago after a White House stint as an assistant to President Bill Clinton. The “heart & soul” metaphor is Engskov’s, who now holds the title of president, US retail.

It’s his view that better headquarters support systems and better training can improve morale as well as customer service; it’s not clear that all the front-line employees agree, or even feel that their voices are heard. “Company Kool Aid” is how one barista described the new agenda.

Most traffic jams eventually resolve themselves, and most bottlenecks straighten themselves out. This isn’t the first time Starbucks has seen difficulties; Schultz had stepped aside before, from 2001 to 2008, only to see sales slump until the board of directors brought him back as CEO.

It’s doubtful that sort of debacle will repeat itself under Johnson, however. Schultz, meantime, is often touted as a presidential candidate in 2020. His interpersonal skills are beyond challenge, and his liberal ideology offers a refreshing alternative to the incumbent occupant of the White House. So far, he hasn’t ruled out a political career.


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