New Starbucks CEO Is Walking Into Big Challenges

It’s almost getting to the point that Starbucks customers can stand in line longer to get their morning fix than a CEO gets to try running the company. Starbucks has hired Brian Niccol, the well-regarded Chipotle Mexican Grill’s former chief executive who presided over a successful turnaround. He replaces Laxman Narasimhan, who leaves immediately.

At one level, it was a simple decision about money. Starbucks sales were flagging and investors were unhappy. But the situation is more complex and Niccol will have fights on his hands. With 38,038 company-owned and licensed locations globally — 9,645 stores in the U.S. alone — and not counting the bean and pre-packaged coffee sales, that’s a lot of commercial real estate that could feel a pinch of things don’t turn around.

First, out of no particular order, there are prices, as the Wall Street Journal explains. As the cost of living goes up on all fronts, consumers have to reconsider whether a cup of Starbucks is something they want to spend money on. There was a 6% drop in U.S. orders in the quarter that ended June 30. Wages grew, food and materials costs were up, and so the company hiked prices. Some long-term fans decided they couldn’t justify the expense, the Journal noted.

And two other challenges surround founder and former CEO Howard Schultz, who was highly critical of Narasimhan. It’s tough to move forward when someone with that much regard and power within the organization, partly because he’s the third largest shareholder. According to the Financial Times, Schultz appears to have been involved in the CEO switch.

Someone who wasn’t informed was Elliott Investment Management, an activist investor particularly unhappy with how the company has been run. The firm was reportedly in contact with Narasimhan and wasn’t informed of Niccol being hired.

Plus, there have been successful unionization attempts at various stores. The company and unions have had tense relationships and a lot of public ill will on both sides. Then there are the activists criticizing Starbucks over the war between Israel and Hamas and some even vandalizing the stores.

All the tensions are likely making a plan to open eight new stores per day around the world, the FT reported. Will that strategy remain under a new regime? A lot of CRE property owners would like to know.