(Bloomberg) -- The turnaround pitch from Starbucks Corp.’s new boss Brian Niccol touched on everything from Sharpies to soy milk, and Wall Street mostly liked what it saw.
Niccol, speaking Wednesday on his first earnings call since taking over as chief executive officer, vowed to crank out drinks for in-store customers in four minutes or less and roll out a more organized system for mobile orders.
He’s also slowing down new store openings and remodels as Starbucks explores how to make their design more functional for workers and welcoming for guests. The company will refocus on coffee while being more disciplined with new offerings.
In addition, Niccol wants to rein in customization as limitless drink options add to baristas’ workflow and cause delays. In an interview Wednesday, he likened all the options to “when you see a little kid go up to the fountain machine and just push every fountain drink into their cup.”
The plan “was quite clear, and aspirational,” Morgan Stanley analyst Brian Harbour said in a note to clients following the call. “It’s easy to be cynical about it now, but it sounded much like the Starbucks we first started going to a couple decades ago.”
He added the vision “does seem achievable, not abstract.”
Schultz’s Support
On Thursday, longtime Starbucks leader Howard Schultz wrote in a LinkedIn post that Niccol understands the brand, adding that many workers are “inspired” by the new CEO’s plan.
“I listened to Starbucks’ earnings call yesterday and was very impressed with Brian’s grasp and understanding of the many facets of Starbucks and the issues facing the company,” wrote Schultz, who remains one of the company’s largest shareholders.
Starbucks shares rose 0.4% on Thursday in New York trading. The stock has advanced 1.8% so far this year, well below the 20% advance of the S&P 500 Index over the same period.
See also: Starbucks Baristas Decry ‘Skeleton’ Staff In Test for New CEO
Niccol is undoing moves by his predecessor, Laxman Narasimhan, who focused on ramping up product launches while offering discounts and accelerating store remodels, among other actions.
Narasimhan’s “litany” of initiatives made it harder for Starbucks to carry them out, Bloomberg Intelligence analysts Michael Halen and Amir Islam wrote earlier this year, while the deals eroded the brand’s premium positioning. In addition to testing new products more rigorously, Niccol said he’d roll back promotions while freezing prices through the current year.
“We were encouraged by the framework that Brian provided, given it laid out additional color on the key areas of focus for the long-term, while also providing specific examples of short-term actions the company is taking,” Abby Roach, a portfolio analyst at Allspring Global Investments, said via email.
Some near-term changes include bringing back ceramic mugs, using Sharpies to personalize customers’ cups and nixing the upcharge for non-dairy milk. Starbucks is also restoring condiment bars that will once again let customers add sugar and cream to their liking — a move Harbour said is “a win for cinnamon aficionados nationwide.”
“The things that are, in my opinion, ‘let’s go’ moves, we’re going to go do them,” Niccol said in the interview. Other efforts, such as streamlining the online pickup order process or paring back the menu “we’re going to have to test and learn our way through,” he said.
Analysts anticipate the changes will take a while to hold, and the path isn’t easy. Morgan Stanley cut its earnings estimate for Starbucks’ current fiscal year, which kicked off at the end of September.
Lower Expectations
Other analysts have also trimmed estimates, citing the impact on sales from the perception that the company’s drinks are now too expensive and how investments to right the ship might dent profits. Niccol has also yet to lay out a plan for Starbucks’ ailing China business, acknowledging that he needs to spend more time there “to better understand our operations and the market.”
“We don’t think this moves the stock much near term — there’s still lots of work to do,” Harbour wrote, referring to the turnaround plans.
Andy Barish, an analyst at Jefferies, also questioned whether limited customization options would alienate some customers and ramp up competition from growing chains such as Dutch Bros.
“While we like many of the changes, we wonder if a return to old school coffeehouse basics, apparently favored by baristas, will better align with customer habits in 2024” and beyond, Barish wrote in a note to clients.
(Adds quote from Niccol in fourth paragraph, reaction from Schultz in eight paragraph and share trading in ninth paragraph.)
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