Starbucks Corporation SBUX surprised everyone this week by naming Reckitt Benckiser Group plc RBGLY CEO Laxman Narasimhan as by Howard Schultz successor.
Narasimhan, born in India, would take the reins of the coffee retailer at a time when the business is going through a transformation. Founder Schultz, who took over the role of interim CEO in March this year, announced a “reinvention” plan shortly after taking office. The plan was intended to address some of the fundamental issues facing the company.
Starbucks goes cold: The COVID-19 pandemic that hit in 2020 has constrained businesses across the board, given the lockdown restrictions in place. The repercussions have been all the more severe for restaurant chains such as Starbucks.
Even before the pandemic, the company’s emphasis on the “third place” concept began to wane, Fastcompany said in a report. The third place is a sociological concept referring to places where people spend time between home – the first place – and work, often referred to as the second place. The retail chain’s take-out orders reportedly accounted for around 80% of transactions in 2019 and sales of more portable cold drinks outpaced those of their hot counterparts.
COVID, therefore, could not have come at a worse time, forcing the closure of the majority of the company’s outlets for an extended period.
Disagree with the baristas: Starbucks’ relationship with its employees also began to deteriorate, as baristas took to the company for poor pay and benefits. For them, the recourse was to organize themselves into unions, which would give them bargaining power.
The campaign has progressed, with baristas at a location in Buffalo, New York successfully organizing as a union in 2021. Last week, a Daily News report said the New York City mayor’s office is pursuing the coffee retailer for illegally firing a barista involved in the organizing efforts.
By early August, 209 Starbucks stores had voted to unionize, CNBC said, citing data from the National Labor Relations Board. In recent months, Starbucks workers have staged strikes in at least 17 states to oppose the company’s anti-union stance, according to The Guardian.
The company reportedly lost $375,000 in revenue due to the strikes.
Starbucks made the move by announcing partner investments including the return of Coffee Master training and black aprons, US partner salary increases, a new Starbucks partner app, and increased training time.
See also: Why this Starbucks analyst is surprised by the CEO’s new pick — and optimistic
The finances point to fundamental issues: Starbucks deals were down 14% in 2020, driven by a 22% drop in comparable transactions. This was reflected in turnover, with revenue down 11.3%. Non-GAAP earnings per share more than halved to $1.17 as margin fell. Easier comparisons contributed to a performance rebound in 2021.
Citing COVID lockdowns in China, one of its key markets, the company announced in May that it was suspending its 2022 guidance.
Third-quarter results released in early August showed only 9% revenue growth on the back of 3% growth in comps. Chinese competitors fell 44% in the quarter. Non-GAAP EPS increased from $0.99 to $0.84.
What awaits the new CEO: Although Narasimhan comes from a healthcare, nutrition and consumer hygiene business, he previously worked with the beverage giant PepsiCo Inc DYNAMISM. At PepsiCo, where he was employed between 2012 and 2019, he held various positions, including Global Chief Commercial Officer. He was responsible for long-term strategy and digital capabilities in this capacity.
Narasimhan is also credited with helping Reckitt Benckiser navigate a major strategic transformation and return to sustainable growth.
“We expect the focus to be on SBUX Investor Day on 9/13, the next big catalyst for the stock, where SBUX will outline its reinvention plan and set new long-term goals backed by plans focused on culture, in-store partner inexperience, store rebranding (layout, equipment, channels) and customer engagement,” Credit Suisse analyst Lauren Silberman said in a note.
Narasimhan won’t really take over until April 2023, though he will join Starbucks as incoming CEO on October 1. Even after officially stepping down from the role of CEO in April, Schultz will remain as a member of the board of directors to help him at the start of his term.
Starbucks closed Friday’s session at $82.94, down 2.88%, according to data from Benzinga Pro.