The Starbucks Comeback is Real

The problem with companies run by legends is getting the old guy to leave. For every situation like Amazon, where Jeff Bezos stepped down as CEO and hasn't much commented on the company since there's a dozen Disney's where the former bosses "retire" yet loom around the company like ghosts, either because of their huge holdings or because they simply refuse to leave. 

Disney's Bob Iger ran Disney for over 16 years, the last two of which were spent polishing his own legacy and musing about his exit with all the understatement and humility of Douglas McArthur.  Iger left Disney on December 31st, 2021. In November of 2022 Iger was "shocked" when the board he'd spent two decades chairing invited him to return. He's been more or less retiring ever since. 

Needless to say companies tend to flounder when they're being run by both the person who has the title of CEO and an old rich luminary looming around the board room and pitching in "advice" from the sidelines. 

No where has that been more true than at Starbucks. Howard Schultz didn't found Starbucks but he served as CEO three times and never really completely left the place. Last May when a weak quarter and the generally oblivious reaction of management sent SBUX shares 16% lower Schultz took to LinkedIn (?!) to hammer his latest hand-picked replacement and suggest the BOD "spend more time with those wearing the green apron". The piece was picked up by every major business news operation in the world, which is what Schultz wanted and expected, given that there are 40,000 Starbucks locations where Americans and almost everyone else picks up their daily speed. 

To the surprise of absolutely no one acting Starbucks CEO Laxman Narasimhan was fired after one more mediocre quarterly report. What was a surprise was who Starbucks picked the replace Narasimhan. After two prior shots at replacing Schultz with quant focused types in Kevin Johnson ("a Microsoft guy") and Narasimhan ("a former consultant") Starbucks finally stepped up and hired a big-name replacement who came with his own Aura: Chipotle CEO Brian Niccol.

Niccol was young, rich in his own right and had overseen a 5 year double in Chipotle revenue, having come in to right the ship when the burrito peddler was reeling from bouts with food-poisoning and failed initiatives. Niccol already had a great job when Starbucks came calling and he wasn't cheap, commanding a cool $85 million in cash and stock.

Wall Street was giddy:

New CEO Magic: The 18 Month Window

"When a manager with a reputation for brilliance tackles a business with a reputation for bad economics it is the reputation of the business that remains intact" is Warren Buffett's endlessly quoted warning against CEO Worship and it's true more often than not. That said, coffee doesn't have lousy economics. Starbucks hasn't been getting killed because of coffee inflation. Starbucks had lousy stores and misguided, if not outright destructive measures of its own success.

Starbucks also has about 40,000 stores, a massive customer list and a firm place as the dominant provider of America's favorite form of speed. 26% and $20b is a preposterous one-day move for a huge company making a change at the top until you remember that Starbucks' prior leadership was measuring success by the number of customers using the Starbucks app, ignoring the fact that ~1/5 of the app users were never picking up their orders because the store experience was slow and generally chaotic. 

Niccol's reputation and huge salary signaled at long last that Howard Schultz was no longer going to serve as the ghostly soul of the chain's culture. Schultz is a legend but multimillionaires in their prime earning years don't jump ship so they can get heckled by some old guy. Niccol is smart, motivated and getting paid a dumptruck of money. If Starbucks is going to retain its dominant position in the caffeine peddling business it won't be because Howard Schultz comes back to save the place. There's a new sheriff and, for the first time in Starbuck's history, everyone in the chain knows he's going to stick around for a while.

I started buying Starbucks late last year. I think shares will lead the performance improvement and break to new highs on the way to $200, barring the usual exogenous risk list of inflation, tariffs, pandemics or other acts of God.

Based on the reaction to Starbucks last earnings announcement Wall St agrees. That's because Niccol is doing the three things Wall St, and frankly everyone else, should love from a new CEO:

• He's lowering Expectations. Starbucks suspended financial guidance for next year. This should always be close to Step One. It expresses a sense of urgency and willingness to do the right things for the long term. Starbucks still has negative comp store sales. Revenue is expected to continue to drop but there's a Long Term Plan now. Starbucks has been duct-taping results together while the store base rotted for years. Niccol made it clear he's operating for the short-term and that's exactly what the company needs.
• He's addressing obvious problems head-on. Starbucks has a bloated menu, slow service and an app customers hate. That's all bad and Niccol knows it. "It's clear we need to fundamentally change our strategy to win back customers" he said in SBUX last earnings release. "Hallelujah" responded a million people waiting in an endless mob for their mobile order to get delivered.
• He's starting with a very basic goals: the 4 minute coffee. If you're going to try to get 40,000-odd stores on the same page you better start simple and Niccol is. Niccol thinks it should take no more than 4 minutes from order to service. Not "quick", not "about 5 minutes". 4 minutes from order to service. 

That last one is my favorite. It's customer-focused, easy to articulate and something the whole chain can use as an immediate goal. Even better anyone can check it! Last week I wrote about traveling ( https://www.stockmarkettv.com/2025-02-14/road-trip ) to NYC with the family. If there are 40,000 Starbucks worldwide it feels like roughly 100,000 of them are located in Manhattan. Literally every corner of midtown has a Starbucks. It's not at all unusual to be able to stand in a Starbucks and be able to see another Starbucks out the window.

Since Mrs. Jeffmacke is a coffee junkie I had the chance to visit at least 10 Starbucks in 3 days. I took my son to the Starbucks on Columbus Circle where mob boss Albert Anastasia was killed in 1957, back when it was a barbershop. We went to the Starbucks where the UNH killer was photographed shortly before the shooting. We went to Starbucks near museums, on Broadway and close to Central Park. 

You know what happened at every single one? It took less than 4 minutes from when I ordered the wife's no fat, no foam Venti vanilla latte (tattoo it on my head) to when it hit the counter. Whether the place was busy, empty or somewhere in the middle the order came out fast and accurate. If that sounds like a small thing it's only because you haven't spent much time in Starbucks lately.

It's also demonstrable, immediate progress. Next Niccol is going to reduce the number of items sold, speed the workflow, create coherent policies (ending the bizarre and endless bathroom debates) and win back the customers drifting over to places like Dutch Bros. Starbucks is setting out to "win back the mornings". By the time he does the stock will already be over $200.

Making money in turnarounds isn't about catching the exact bottom. It's about being long during the period when there are no specific financial goals but the progress is obvious.