Starbucks Ruined by CEO Niccol

By Douglas A. McIntyre Published Sep 19, 9:15AM EDT

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After a year with Brian Niccol as Starbucks Corp. (NASDAQ: SBUX) CEO, the stock has underperformed the S&P 500.
His efforts have thus far failed to produce a turnaround.
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Starbucks Ruined by CEO Niccol — © starbucks spill (CC BY 2.0) by Eric

Brian Niccol has been Starbucks Corp. (NASDAQ: SBUX | SBUX Price Prediction) CEO for a year. He recently said the coffee store chain would soon be a “world-class customer service” company. He has come nowhere close to that, if his changes and Starbucks earnings are any measure. Niccol claims the company is well along this path, based on feedback from employees and customers. He didn’t offer any solid proof.

Over the past year, Starbucks stock is down 13%, while the S&P 500 is 18% higher.

Niccol has tried several new tactics to bring customers back and make Starbucks a neighborhood place again. He has reduced the menu, which should help speed up service. Baristas now put notes on cups when they give them to customers. He is in the midst of remodeling some stores. He says he has increased staffing at stores to improve service. And Starbucks baristas have a new dress code.

Niccol has also set a mandate that office workers be in their offices four days a week. He has fired 1,100 management people to make Starbucks “leaner and more focused.”

Niccol’s efforts have not gotten revenue growth back on track or reversed a decline in comparable store sales. In the most recent quarter, revenue was up 3.8% to $9.5 billion. Earnings dropped 47.3% to $0.49 per share. Comparable store sales dropped 2% worldwide. Niccol’s “Back to Starbucks” plan had not taken hold. The next litmus test is whether there is a sharp increase across all these numbers when Starbucks puts out its next quarterly results.

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Niccol says one of his goals is to have as many as 30,000 stores in China. Today, there are about 8,000. Luckin Coffee has challenged the company in China. The local chain has more stores there than Starbucks has and is growing quickly.

In the United States, Niccol has to prove people will come back to his stores, particularly when consumer spending is shaky because of a choppy economy. Unless he can hit his long list of goals, he can forget about a turnaround in Starbucks stock.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.