It\u2019s become a familiar sight at Starbucks cafes: a counter crowded with mobile orders, frustrated customers waiting for the drinks they ordered and overwhelmed baristas trying to keep up with it all.<\/p>\n
Fixing that problem will likely top incoming CEO Brian Niccol\u2019s list of tasks to turn around the struggling coffee giant when he steps into the role on Sept. 9.<\/p>\n
Investors and executives alike have pointed to operational issues as one reason the chain\u2019s sales have lagged in recent quarters. Other culprits for its recent same-store sales declines include a weakening consumer, boycotts and the deterioration of the Starbucks brand.<\/p>\n
Former CEO Howard Schultz, who lacks a formal role with the company but remains involved, has also pointed the finger at the mobile app. He said it has become \u201cthe biggest Achilles heel for Starbucks,\u201d on an episode of the \u201cAcquired\u201d podcast in June.<\/p>\n
Mobile orders account for roughly one-third of Starbucks\u2019 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 baristas\u2019 time, frustrating both them and customers.<\/p>\n
\u201cI agree with Howard Schultz,\u201d said Robert Byrne, senior director of consumer research for Technomic, a restaurant market research firm. \u201cThis is not in the data \u2014 this is in the store. This is where the issue lies.\u201d<\/p>\n
In late April, the current CEO, Laxman Narasimhan, said the company was struggling to meet demand in the morning \u2014 and scaring away some customers with long wait times.<\/p>\n
Schultz said he experienced the problem himself when he visited a Chicago location at 8 a.m.<\/p>\n
\u201cEveryone shows up, and all of a sudden we got a mosh pit, and that\u2019s not Starbucks,\u201d Schultz said on the \u201cAcquired\u201d episode.<\/p>\n
Making mobile orders more efficient is one of the key ways Niccol can reduce crowding at Starbucks.<\/p>\n
When Schultz was building Starbucks to become the coffee behemoth it is today, he positioned it as a \u201cthird place\u201d between work and home. Since then, the chain has lost that reputation as more customers lean on the convenience of mobile ordering and prefer not to linger at its cafes.<\/p>\n
\u201cBecause it\u2019s a beverage, and because I\u2019m frequently consuming it in the car or on the go, it needs to be incredibly convenient,\u201d Byrne said.<\/p>\n
But Starbucks also didn\u2019t make significant adjustments to its operations to anticipate that shift in consumer behavior.<\/p>\n
In 2017, Schultz stepped down as CEO for the second time, handing the reins to Kevin Johnson. Prior to joining the coffee chain as its chief operating officer, Johnson served as chief executive of Juniper Networks, a tech company. Under his leadership, Starbucks invested in technology and kept growing digital sales, but restaurant operations were already struggling when he left the company.<\/p>\n
Schultz stepped back in as interim CEO when Johnson retired in 2022.<\/p>\n
\u201cThe company did not do a good job of anticipating the technological refinements that needed to be put in place to avoid what was happening. … The stock was at record high, the company was not investing ahead of the curve, not paying attention to the velocity of the mobile app and what it was becoming until it was too late,\u201d Schultz said.<\/p>\n
Shareholders have also experienced the frustration with digital orders \u2014 and see it as a critical area for Niccol to address.<\/p>\n
\u201cThe problem you have in New York City, for example, is what is the wait time,\u201d said Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments, which owns shares of both Starbucks and Chipotle. \u201cAnd then the mobile orders taking precedence over the in-store orders. [Niccol\u2019s] going to have to flip that somehow to get people to spend more time and more money in stores.\u201d<\/p>\n
The mobile-order issues have added pressure on baristas. Burnout, fueled in part by the app, helped inspire some employees to unionize, beginning in 2021.<\/p>\n
This November, Starbucks Workers United, which now represents workers at roughly 450 of the chain\u2019s U.S. stores, pressed the company to turn off mobile ordering when it\u2019s running promotions. (Starbucks said at the time that it was already in the process of making the change possible.)<\/p>\n
Digital sales aren\u2019t the same albatross for Niccol\u2019s current employer, Chipotle.<\/p>\n
In its latest quarter, 35% of the company\u2019s revenue came from online orders. The pandemic fueled a shift to online ordering that has stuck around, as the share of digital orders has jumped from 18% in 2019.<\/p>\n
When Niccol joined Chipotle in 2018, most of its restaurants had already installed a second prep line dedicated to digital orders, aiming to avoid bottlenecks as online sales became more important to the business. That same year, it also began adding drive-thru lanes just for online order pickup, which it calls \u201cChipotlanes.\u201d<\/p>\n
In his six and a half years at Chipotle, Niccol and his executives boosted digital sales through different promotions: sports stars\u2019 favorite orders, limited-time deals, a rewards program and the long-awaited launch of quesadillas. In particular, quesadillas became a digital-only option because they would otherwise slow down operations.<\/p>\n
Chipotle has also been testing automation to make burrito bowls ordered through its mobile app through a partnership with robotics firm Hyphen.<\/p>\n
Starbucks has been taking steps to speed up service and improve baristas\u2019 work experience.<\/p>\n
In 2022, under Schultz\u2019s leadership, Starbucks introduced a reinvention plan that included tackling bottlenecks through new equipment and other measures to speed up service.<\/p>\n
Narasimhan has largely stuck to that strategy. This February, its mobile app finally started showing customers the progress of their orders, giving them a better idea of when their drinks will be ready. And in late July, Starbucks rolled out its \u201cSiren Craft System\u201d across North America, a series of processes to make drinks faster and baristas\u2019 jobs easier.<\/p>\n
But the problem for Starbucks, could require more drastic measures.<\/p>\n
For example, the equipment rollout has been slow, with roughly 40% of North American locations expected to install the new machines by the end of fiscal 2026. Speeding up that timeline could cut service times in half \u2014 as promised at the investor day in 2022 \u2014 and reduce the strain on baristas.<\/p>\n
\u201cIt\u2019s not an easy lift by any means to do that, like that\u2019s going to take time and training and investment and [capital expenditure],\u201d TD Cowen analyst Andrew Charles said.<\/p>\n
\u201cIn our view, Brian has tremendous credibility, where if he tells investors, \u2018This is the answer to the problem we\u2019re having,\u2019 and can explain why he believes that \u2014 he\u2019s going to get a pass,\u201d Charles said.<\/p>\n<\/p>\n
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