Starbucks’ new CEO Brian Niccol may target mobile apps

This has become a common sight Starbucks Cafe: The counter is crowded with mobile orders, customers anxiously waiting for their ordered drinks, and overwhelmed baristas.

Solving this problem will likely be a top priority for incoming CEO Brian Niccol in his bid to turn around the fortunes of the troubled coffee giant. Getting into character September 9th.

Investors and executives have pointed to operational issues as one reason Starbucks has seen sales fall in recent quarters. Other reasons for the recent same-store sales decline include consumer weakness, boycotts and a fading Starbucks brand image.

Former CEO Howard Schultz, who has no official role at the company but remains involved, has also taken aim at the mobile app, saying in an episode of “Starbucks Coffee” that it has become “Starbucks’ biggest Achilles’ heel.” The Day After Tomorrow Podcast In June.

Mobile orders account for about a third of Starbucks’ total sales and tend to be more complicated. While add-ons like cold foam or syrups are more profitable for Starbucks, they tend to take up more of the baristas’ time, frustrating them and customers.

“I agree with Howard Schultz,” said Robert Byrne, senior director of consumer research at Technomic, a restaurant market research firm. “The problem is not in the data. The problem is in the store. That’s the problem.”

At the end of April, the current CEO Laxman Narasimhan said The company had trouble meeting morning demand, and long waits scared off some customers.

Schultz said he encountered the same problem when he went to a store in Chicago at 8 a.m.

“Everybody showed up and all of a sudden we had a mosh pit, but it wasn’t Starbucks,” Schultz said on “The Day After Tomorrow.”

Improving the efficiency of mobile ordering is one of the key ways Niccol is reducing crowding at Starbucks.

When Schultz built Starbucks into the coffee giant it is today, he positioned it as the “third place” between work and home. The chain has since lost that reputation as more customers rely on the convenience of mobile ordering rather than lingering in a cafe.

“Because it’s a beverage and I often drink it in the car or on the go, it needs to be very convenient,” Byrne said.

But Starbucks also didn’t make significant changes to its operations to anticipate shifts in consumer behavior.

Schultz stepped down as CEO for the second time in 2017, handing the reins to Kevin Johnson. Johnson was CEO of tech company Juniper Networks before joining Starbucks as COO. Under his leadership, Starbucks invested in technology and continued to improve digital sales, but when he left the company, restaurant operations were already struggling.

When Johnson retires in 2022, Schultz will again serve as interim CEO.

“The company did a poor job of anticipating what technological improvements would be needed to avoid this scenario. … Despite record stock prices, the company didn’t invest ahead of time and pay attention to how fast mobile apps were growing and where they were headed until it was too late,” Schultz said.

Shareholders were also frustrated by digital orders – and saw it as a key area that Niccol needed to address.

“The problem in New York City, for example, is that wait times are too long,” said Nancy Tengler, CEO and chief investment officer at Laffer Tengler Investments, which owns stakes in Starbucks and Chipotle. “And then mobile orders take precedence over in-store orders. (Niccol’s) has to somehow turn that around and get people to spend more time and money in-store.”

Mobile ordering issues have added pressure on baristas. Burnout, sparked in part by the app, prompted some employees to unionize starting in 2021.

In November, Starbucks Workers United, which represents employees at approximately 450 Starbucks stores in the United States, Putting pressure on companies Turn off mobile ordering during the promotion. (Starbucks said at the time that it was already working on this change.)

Digital sales is not a heavy burden for Niccol’s current employer. jalapeno pepper.

In the latest quarter, 35% of the company’s revenue From online ordersThe pandemic drove a shift toward online ordering, a trend that has continued, with the share of digital orders jumping from 18% in 2019.

When Ms. Niccol joined Chipotle in 2018, most of the company’s restaurants had installed a second prep line dedicated to digital orders, designed to avoid bottlenecks that emerged as online sales became more important to the business. That same year, the company also began adding drive-thru lanes that are used only for online order pickup, which the company calls “Chipotlanes.”

During his six and a half years at Chipotle, Niccol and his executives boosted digital sales through a variety of promotions: sports star favorites orders, limited-time offers, rewards programs and the long-awaited Roll out the tortillas. In particular, tacos became a digital-only option because they would otherwise slow down operations.

Chipotle also Test Automation By partnering with robotics company Hyphen to make burrito bowls ordered through its mobile app.

Starbucks has been taking steps to speed up service and improve the work experience for baristas.

In 2022, under Schultz’s leadership, Starbucks Launched a remodeling plan These include new equipment and other measures to address bottlenecks and speed up service.

Narasimhan has largely stuck with that strategy. In February, Starbucks’ mobile app finally began showing customers the progress of their orders, giving them a better idea of ​​when their drinks will be ready. In late July, Starbucks launched “Siren Crafting System” Across North America, a range of processes are designed to make drinks faster and reduce the workload on baristas.

But for Starbucks, addressing the problem may require more drastic measures.

Equipment rollouts, for example, have been slow, with about 40% of North American stores expected to have new machines by the end of fiscal 2026. Accelerating that timeline could cut service times in half — as promised at its 2022 investor day — and reduce stress on baristas.

“It’s not going to be easy to do by any means and it takes time, training, investment and (capital expenditures),” said Andrew Charles, an analyst at TD Cowen.

“We think Brian has such high credibility that if he can tell investors ‘Here’s the answer to the problem we’re facing’ and explain why he thinks that, then he’ll be let go,” Charles said.