Can a Schultz China visit restart Starbucks success in China?
Starbucks interim CEO Howard Schultz told The Wall Street Journal he has set a travel schedule with incoming CEO Laxman Narasimhan, and the two plan to visit China together once pandemic controls on inbound visitors ease. The trip follows a grim stretch for Starbucks China: third-quarter revenue fell 40% year on year and customer traffic dropped 43%.
Schultz wants to pass on Starbucks culture to his successor and turn the business around through investment in café operations and employee benefits. Starbucks China has also released a 2025 vision planning roughly 3,000 additional stores. Narasimhan's digital background draws attention, but rivals such as Luckin are rising, and the history of coffee in China now includes far more local competition.
Starbucks interim CEO Howard Schultz recently revealed in an exclusive interview with The Wall Street Journal that he has set a travel schedule with incoming CEO Narasimhan, and the two will visit China together once China relaxes its pandemic control measures. Behind this move lies the grim reality of Starbucks China's continued decline in performance: third-quarter revenue plunged 40% year-on-year, with customer traffic down 43%. Meanwhile, Starbucks China released its 2025 vision, planning to add about 3,000 stores. Schultz hopes to instill Starbucks culture in his successor and turn things around by investing in cafe operations and employee benefits. The new CEO Narasimhan's digital capabilities are highly anticipated, but in the Chinese market where rivals like Luckin are rising, can he lead Starbucks back onto a growth trajectory?
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In a recent in-depth conversation with The Wall Street Journal, Starbucks interim CEO Howard Schultz revealed that he had already jointly planned a future visit schedule with incoming CEO Laxman Narasimhan. As long as China relaxes its pandemic controls on inbound visitors, he intends to personally lead Narasimhan to inspect the Chinese market.
Schultz mentioned that, based on the store-opening targets and financial guidance included in the vision Starbucks China released last week, he had asked the company's management to spend several days assessing whether they had confidence in these targets, and made clear to them that they would not be held accountable even if the relevant indicators were lowered. Ultimately, the senior team unanimously stated they would "stick to achieving these numbers."
This outgoing CEO is about to leave Starbucks for the third time, and he has already drawn up a wish list. He wants to ensure that the strategic reform plan he formulated together with other executives can steadily advance, and he is "eager" to return to the important market of Starbucks China.
Schultz previously said that after Narasimhan formally assumes the CEO role, he will remain on the company's board of directors and assist Narasimhan as a long-term advisor, guiding Starbucks to a higher level. He subsequently also announced that he would not serve as CEO again! What exactly lies behind this rush to visit China with the new CEO? After all, hit by the COVID-19 pandemic, Starbucks' sales in China have been on a downward track.
As of the end of the third-quarter reporting period, Starbucks' total global store count reached 34,948, of which 51% were company-operated stores and 49% were licensed stores. Stores in the United States and China together accounted for 61% of Starbucks' global business, with 15,650 stores in the United States and 5,761 in China.
In the United States, its largest market, Starbucks revenue reached $5.62 billion, up 13% year-on-year. However, in China, its second-largest market, Starbucks remains mired in persistently shrinking sales. In the third quarter, Starbucks China's revenue was only $540 million, plummeting 40% year-on-year, with customer traffic down 43% and same-store sales down 44%.
In China, the pandemic has brought enormous challenges to Starbucks' business in its second-largest market, which contributes about 13% of Starbucks' annual sales. While Schultz was preparing for the handover, Starbucks China last week released its 2025 vision, which set ambitious store-opening targets, planning to add about 3,000 net new stores in China by 2025, fully demonstrating the weight of the Chinese market for Starbucks.
Schultz also hopes to pass on Starbucks' culture and history to incoming CEO Laxman, thereby preventing a recurrence of some of the problems that have appeared in recent years. Schultz said: "If employee turnover can decline and customer service improves, I will consider my work a success. In addition, Starbucks must also regain the trust of investors."
On September 14, at Starbucks' biennial global investor conference, Starbucks China chairman Belinda Wong said: "We continue to expect that Starbucks' recovery in China will be non-linear." After striving to overcome the challenges brought by the pandemic, Starbucks China has shown greater resilience. "We will embrace new development opportunities more deeply and always lead the coffee industry forward." She observed that there is a strong positive correlation between the improvement in same-store sales and the easing of pandemic control restrictions, "which gives us confidence that once travel restrictions are fully lifted, sales will see a strong rebound."
Starbucks interim CEO Schultz pointed out that increasing investment in chain coffee shops and employees will push the coffee giant onto the right track for a turnaround by 2024. At the investor briefing, Schultz introduced Starbucks' strategic reforms. He said that Starbucks' spending on cafe operations and employee benefits will boost sales and profits, and shareholders will benefit from dividends and the eventual restart of share buybacks; these improvements are expected to help enhance customer service and the employee experience.
It is widely believed that what Schultz values is precisely Narasimhan's capabilities and determination in the digital field. Indeed, Starbucks may be able to continue deepening its efforts in digitalization and product innovation. After all, at present, new and old rivals such as Luckin are constantly emerging in China's coffee market, which is likewise enough to command Starbucks' attention.
Because the appointment did not happen long ago, it is still unclear how Starbucks' new CEO Laxman Narasimhan will develop China, Starbucks' second-largest market globally. Under Schultz's guidance, can the new leader Laxman Narasimhan turn Starbucks China's operating profit from loss to profit?
Image source: Internet
The above content is compiled by CoffeeHunters, a coffee news website.
