The story of an iconic brand that drifted, unmet growth expectations and the exit of a new CEO after just 18 months. Longer than most of my blogs (1500 words) skip to the end if you can’t spare 5 minutes reading time.
In August 2024 Starbucks removed its then CEO, Narasimhan, and appointed a ‘rock star’ CEO & Chair, Brian Niccol, with a hiring package worth more than US$100M. SBX shares immediately jumped almost 25% adding ca. US$25B to their market value[i]. Niccol had earned his reputation successfully turning around Chipotle.
A great headline. But what’s the story behind the change?
Narasimhan had been appointed interim CEO in October 2022, with his appointment formalised in April 2023. Prior to Narasimhan’s appointment, the founder, Howard Schulz, was briefly acting CEO as part of the transition. He was the founding CEO from 1987-2000 and had returned in 2008 (until 2017) to lead it through a prior renewal.
Narasimhan inherited a strategy designed by Schultz, heavy on growth, doubling down on their China expansion. Narasimhan sought to put his flavour on it with his ‘triple shot reinvention with two pumps’ strategy.
But in April 2024 Narasimhan reported ‘disappointing’ quarterly figures, with a dip in same store sales, and slashed guidance for revenue growth. SBX shares plummeted almost 16%. In July there was further evidence of continuing drift. Same store sales were down. Comparable sales in China were off 14%. In August Narasimhan was gone.
The financial press reported two major ‘failures’ under Narasimhan: the lack of growth; and growing operational friction. Given his limited time in the chair, perhaps these were simply ‘signifiers’ of a larger issue. A former executive suggested Narasimhan ‘has not quite grasped the soul of the brand’. And there was reported discord over some key decisions with ‘veterans’ of Schultz’s management team
The China growth strategy faced twin headwinds of price and competition. SBX is credited with bring the café culture to China. It is easy to imagine the potential Starbucks saw in China. Even today, its per capita consumption is just 0.15kg per person (cf. US 5kg/person; Australia 2kg/person). Starbuck’s China revenue has grown to ca. $3B, about 20% of its overall revenue since it entered China in 1999.
But new and nimble local players are pushing low prices and fast delivery. The market competition is intense. Sales in China have fallen for each of the last four quarters: its market share has fallen from 34% in 2019 to 14% in 2024.
The dramatic fall in market share is partly attributable to growth of the more price sensitive market. Consumers remain unwilling to spend amid the confidence shattering property market downturn. This is more than just a Starbucks problem: it’s a China problem. Added to this was a growing Chinese nationalism and the cost of Trump’s aggressive stance against China.
Two decades ago a former BHP President – China quipped: “in China, anything is possible, everything is difficult”. Today the opportunities are less and everything is more difficult.
The ‘operational issues’ are a consequence of internal and external shifts. Commonly reported issues include:
§ Cafes that once averaged 1,200 orders a day are often now trying to make 1,500
§ Baristas have been overwhelmed by the tens of thousands of customisations enabled by the app
§ The app may show a 7 minute wait time, the actual wait time can blow out to 15 minutes
§ Asking for a service tip on the app before you’re even served is, at best, awkward
§ Cafes were removing furniture to create more space to accommodate the morning rush. You didn’t get the feeling they want you to stay.
External factors – cost of living and culture wars – are also a drag on Starbucks performance.
§ Starbucks price increases have given customers another reason to go elsewhere.
§ Republicans and President Trump criticise Starbucks for not explicitly referring to Christmas; the left for rebuffing approaches to unionisation; and activists’ boycott of Starbucks for its response to the Israel-Hamas conflict.
Add to this are the changing consumer preferences – including work from home and the growth of drive through cafes in the post-COVID environments.
What now?
When Schultz launched Starbucks it was with a clear vision around ambience, a third place between work and home, where people were encouraged to linger on a couch. Starbucks promoted the idea “we’re not in the coffee business serving people; we’re in the people business serving coffee”. The ‘experience’ has always been core to the Starbucks offering.
Niccol (the new CEO) has pledged to end the drift from its coffee house roots, to restore its status as a ‘community coffee house’. In a letter to employees he argued that some stores lacked the ‘magic’ that draws customers into Starbucks. This is the same playbook he ran at Chipotle:
“he [Nicoll] restrained himself from making drastic changes … we knew not do any of those things, we just needed to get even better at doing what people already loved us for”
Starbucks has seen this movie before. In January 2008 Schulz returned as CEO after an 8-year hiatus, concerned the business had sacrificed the ‘essential magic’ of the stores in pursuit of efficiencies and economies of scale, leading to the commoditisation of the brand. Compounding these changes, Starbucks was feeling the competitive pressure: from the low-cost McDonald’s and Dunkin’ Donuts, and the independents at the higher end. Starbucks was being squeezed in the middle.
“ “it’s time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion we all have for the true Starbucks experience” ”
This is a common theme in ‘strategic renewal’: a return to what made the brand famous in the first instance. Bain has argued the root cause of the loss of momentum and direction can be tracked back to the loss of the ‘founder’s mentality’. And one of the core elements of the founders mentality is their ‘insurgent mission’.
Schultz was the ultimate insurgent. When he launched the business 40 years ago his critics rejected his idea: viz.
“You’re going to sell coffee for a dollar in a paper cup with Italian names no-one in America can say at a time when no-one’s drinking coffee … and I can get a coffee in the local coffee shop for 50 cents? Are you kidding me?”
His reverence he has for the merchant is evident:
“This is what merchants do … we take something ordinary and infuse it with emotion and meaning, and then we tell its story over and over and over again, often without saying a word”
Schulz tells the origin story of Starbucks with the flair of the entrepreneurial merchant:
“When I popped into a small coffee bar ‘Bon Giorno’ an older thin man behind the counter greeted me, as if I were a regular. Moving gracefully and with precision, he seemed to be doing a delicate dance as he ground coffee beans, steamed milk, pulled shots of espresso, made cappuccinos, and chatted with customers standing side by side at the coffee bar …
… It was so much more than a coffee break; this was theatre
”
Can Niccol capture this same passion, energy and ‘joie de vivre’?
Will the playbook work this time around? Can Starbucks reinvent itself again? Or has the changed macro context inflicted permanent damage to the business? And where can it find growth?
What lessons might you take from this narrative?
§ As a new CEO do you fully understand the expectations, including time frames, of the Board. These may be ‘unreasonable’ but that’s the deal you made[i].
§ Successful business model pioneers are often insurgents, with a profound insight into an unmet customer need. Does the organisation still fully express that essence?
§ Be alert to the risk of strategic drift. Is it you? Are you pursuing changes for operational efficiencies which conflict with your brand promise? Or is it ‘them’? Have the customers preferences shifted?
Good luck.
[i] The market doesn’t always make the right call on new CEO’s. When Bob Iger returned to Disney two years ago, the market added $10B to the value of the firm: the stock price fell 20% over the next 12 months; in April 2025 it was off ‘still/again’ 15%. By contrast, the market was sceptical when Satya Nadella took over Microsoft: its market cap has grown nearly 10-fold under Nadella’s leadership from ca. $350B to north of $3T. Wall St Jnl (2024): There’s a new $27B CEO – and he might actually be worth it
[ii] As this is uploaded today (3 July 2025) the AFR reports Dominos CEO departs after less than a year in the role. The Chair who is taking on the executive duties remarked: there was no fundamental problem with the strategy … we now have to execute
