Howard Schultz tells Starbucks to fix its stores and mobile app to reverse 'fall from grace'

• Longtime Starbucks CEO Howard Schultz has some thoughts on Starbucks' poor sales.
• He said the chain needs to listen to baristas, fix its app, and focus on the customer experience.
• Starbucks posted a drop in same-store sales in North America and China, its two biggest markets.

Howard Schultz says Starbucks needs to fix its stores and mobile app to reverse its "fall from grace."

The coffee chain must focus on the customer experience in its outlets, the longtime former CEO wrote in a LinkedIn post on Sunday in the wake of last week's weak results.

"The company's fix needs to begin at home: US operations are the primary reason for the company's fall from grace," Schultz wrote. "The stores require a maniacal focus on the customer experience, through the eyes of a merchant. The answer does not lie in data, but in the stores."

Schultz knows what he's talking about — he's had multiple stints leading Starbucks, spending more than two decades as CEO.

Although he didn't found the chain, instead buying it from its previous owners, Schultz shaped the company's growth and turned it into a global giant.

He most recently returned as interim CEO for nearly a year after Kevin Johnson retired in April 2022.

"Senior leaders — including board members — need to spend more time with those who wear the green apron," Schultz wrote on LinkedIn, referring to its baristas. He said that Starbucks needed to "overhaul" its strategy and reinforce its "premium position."

"Through it all, focus on being experiential, not transactional," Schultz wrote. Starbucks has long positioned itself as a "third place," where people can spend time outside their home or workplace, although this model is under threat as the chain increasingly embraces drive-thru and delivery sales.

Schultz added that one of leadership's first actions should be to "reinvent" its mobile app to make it an "uplifting experience" again, without elaborating. App orders made up 31% of all US transactions in the quarter.

CEO Laxman Narasimhan told investors last week that a "mid-teens percent" of potential mobile orders weren't being completed, with customers putting items into their carts but then not finalizing orders. Baristas have complained that the app can leave stores inundated with too many orders, and that customers sometimes use it to order drinks with excessive modifications.

Recovery 'certain'

Starbucks posted a 1.8% fall in quarterly net revenues to $8.56 billion, with fewer visits from what Narasimhan described as "occasional" customers.

In North America, comparable sales fell 3%, driven by a 7% drop in the number of transactions. That's where almost half Starbucks' stores are located, and the region accounts for almost three-quarters of its revenues.

The decline was far worse in China, Starbucks' second-biggest market behind the US, where comparable sales plunged 11%. The number of orders was down 4%, with an 8% decline in ticket size. Total revenues in China fell 8% to $705.8 million.

William Blair analyst Sharon Zackfia said in a note to clients that the chain had posted a "stunning across-the-board miss on all key metrics."

The stock is down 22% this year, and by almost a third over the past 12 months, leaving Starbucks worth about $82 billion.

It's not the first time Schultz has offered some advice to management. Earlier this year he said Starbucks should go on a soul-searching journey and reinvent itself in a two-page letter posted on LinkedIn.

However, the "chairman emeritus" hasn't lost faith in the business.

"Starbucks will recover — of that, I am certain," Schultz wrote on Sunday. "I am confident the China business will return to health and become the company's largest market. The brand is incredibly resilient, but it's clearly not business as usual."

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