Starbucks recently booted CEO Laxman Narasimhan after less than two years on the job. On Sept. 9, former Chipotle chief Brian Niccol took over as the sixth CEO in Starbucks’ history and their second CEO to inherit a union-fueled mess. He faces an immediate two-pronged set of challenges:
Declining sales have persisted for multiple consecutive quarters and can be partially attributed to inflation-stricken consumers cutting back on iced lattes. Customers also express growing frustration about long order wait times, and when 70% of clientele order through the online app or drive-thru, this causes pick-up chaos that ex-CEO Howard Schultz has called “a mosh pit.”
More union woes: Starbucks’ recent period of soul searching led to opening contract framework negotiations with Workers United after the company’s union woes kept growing. Starbucks Workers United now claims nearly 500 unionized cafes, meaning that nearly 200 more cafes imbibed the union Kool-Aid during Narasimhan’s tenure. That’s still less than 1% of the company’s 9000+ U.S. locations, but clearly not ideal.
Additionally, two federal whammies greeted Niccols:
Mandated reopening of cafes: An administrative law judge ordered Starbucks to reopen three cafes in Ithaca, NY, after finding that the closures were illegally carried out to discourage unionization at other cafes. Starbucks will almost certainly appeal this.
Cemex in action: The NLRB cited the Cemex decision over Starbucks’ conduct at a Missouri cafe – including prohibiting workers from distributing union literature – after Workers United requested recognition and before the representation election occurred. The Board’s decision and order set aside election results (a union loss), and the Board could issue a remedial bargaining order.
Meanwhile, the new CEO previewed plans for improving sales:
Change on the horizon: Niccol is hailed as a marketing whiz with a proven track record for innovation. He has worked at Taco Bell and Chipotle, where he streamlined operations and guided Chipotle away from a food poisoning crisis while boosting sales and the company’s stock price.
Starbucks-specific concerns: Starbucks faces more complex operational challenges, as the coffeehouse’s menu is vast compared to a burrito assembly line. Customizing drinks leads to 100,000 time-consuming variations, and Workers United wants “the ability to turn off mobile orders” during busy and understaffed shifts.
A new outlook: Niccols penned a message expressing intent for “[e]mpowering our baristas” to “have the tools and time to craft great drinks every time.” He stressed the importance of improving the current mobile order process and aimed to provide clearly labeled areas where customers can pick up to-go orders. He also wants Starbucks to feel like “a coffee shop again” where people enjoy food and drink in cozy chairs.
Wall Street’s response to Niccols’ entrance boosted Starbucks’ stock price from $77 to $95 within days. How he will handle SBU remains to be seen, although he brings some prior union baggage from organizing efforts by the Teamsters during his tenure with Chipotle.
First contact bargaining continues: SBU will hold a fifth “Red For Bread” weekend from Sept. 20-23 to raise awareness of ongoing contract negotiations. The union asks customers to wear red in solidarity and order drinks under the “UNION STRONG” name.
Conclusion: SBU wants operational changes, and Nichol is naturally that type of CEO, so perhaps he will be the key to slowing union momentum. However, Starbucks was unprepared for SBU’s infiltration, and all companies can benefit from preparing a playbook against union activity. Time will tell what the future holds for the relationship between the coffee giant and the SBWU.
