#23 Starbucks CEO: We lost our focus

0:28Hello, welcome to Big Boss Interview. one of the most recognisable names on the planet. We're talking to Brian Nicol, the CEO of Starbucks, the world's largest coffee chain and one of the most influential consumer brands in history. Our North America correspondent, Michelle Flurry, has been sitting down with him. Michelle, tell us a bit more about Starbucks and what really stood out from your interview. Our conversation was pretty wide ranging. There was one central message, that is that he's trying to bring back this idea of Starbucks as a cosy local coffee house. He used the word connection about eight times during our chat.

1:05He's also trying to cut down on order times. In recent years, many of us have had that experience of waiting too long for a drink. He's using technology like AI to help baristas make orders more quickly. All of this is to get you and I to spend more time in a Starbucks coffee shop. So here he is, the chief executive of Starbucks, Brian Nichol.

1:31I'm here with Brian Nichols, the CEO of Starbucks. Thank you very much for joining us here in one of your coffee shops. Yeah, great to be here. We're one year into your turnaround plan, Back to Starbucks. What do you think is the one thing that perhaps you underestimated that maybe investors and employees would be surprised by? You know, look, I think the thing that's most exciting about the Back to Starbucks strategy is it really is just a change to getting back to putting the customer at the center of everything we do. And that is part of the reason why I was saying this is back to Starbucks, because I really think that's how the company started.

2:09But I think we lost our focus because we got a little too distracted on efficiency and technology and lost, I think, our focus on experience, customer, and connection. And so, you know, whenever you're making kind of a shift in culture and then just mindset, it takes a little bit of a time for that change to take hold. But I will say our stores adopted it really quickly. And then as we started to roll out these initiatives that then gave them the ability to do that consistently over and over again, you kind of get the results that we just had in our first quarter. So then as you look ahead to the next year, at the end of this year, what do you think will be the sort of mark of success?

2:54Well, to continue the top line performance, right? We have to consistently deliver the comp performance of 3 % or better. And I think that'll be a great signal that we are doing this now consistently. Our customers are recognizing it. Our partners are getting the reps. They have the team, they have the tools to consistently deliver the experience and the top line results. That will ultimately travel into earnings performance and the bottom line performance as well. So investors should be patient. They're seeing same store sales improve, but a little bit more patience when it comes to operating margins, profits.

3:31I think that's all going to come. And I think as every quarter progresses, you're going to see how that continues to play out. Let's go into the operational side. You've brought back ceramic mugs. handwriting on cups, you're giving a lot of the stores a makeover to make them warmer, comfier places. How do you think that change has made a difference to guests? Well, hopefully they've noticed a big difference. We want you to stay. We want you to make this your community coffee house. We want this to be a place where you can have a moment, whether that moment is for you to take a moment or whether that's a place where hang out with friends or as you were mentioning, right, young kids as a place to be, older adults as a place to be.

4:15And, you know, I think people want these places to gather. The humanity of it is important. And I think ultimately people want this in their community. So to have the comfortable furniture, to have the ceramic mug, all these things are signals that say we want you to stay. And then when you spend time with our partners or our baristas, you realize that there's a connection with them. And the personalization that you get or the personal experience that you get just carries, I think, the brand with people when they leave the store even. So, you know, even when you end up doing a takeout order or a drive-thru order, I think that experience stays with you.

4:55I really do believe if we get this right, which I believe we will get it right, our customer service experience will be the benchmark of what customer service should be. But how does that translate in financial terms? Is it customers spending more money? Are they visiting more frequently or is it something else? It's all of the above. You know, and what you saw in our most recent quarter is just that, right? Our rewards customers are coming more often. We provided innovation where people are adding cold foam to more drinks, protein cold foam. And then you've also seen the frequent customer that hadn't shown up in the past showing up again because we now have the right experience, the right menu offering, the right innovation.

5:37And so you end up making progress on all those fronts, transactions, and then obviously the frequency of those transactions. Now you have set a speed target per order of about four minutes. At the same time, you know, you and I are talking about the baristas kind of forming more of a connection, slowing down, engaging with customers more. I mean, do those goals, they don't necessarily seem aligned. So how, which one of those two do you prioritize? Well, I think actually they are because in our business, there are peaks. And during the peaks in that ritual moment where people just need their coffee or their drink and want to get going, we need to be able to provide that convenience and that experience.

6:18And that connection in that moment can just be as simple as a hello or a simple, you know, have a great day written on the cup. Then there are other moments in the time of day where there is freedom of time to actually have a more robust connection. And, you know, I think our partners have the ability to decide in this moment, we've got a peak on our hands. We need to deliver for this person on their occasion. And there are other times where they'll come out to your table and ask you how your day is going. So they're not inconsistent. And actually, what it actually does is it makes us aware of the occasion that's at hand.

6:55And those occasions that require convenience and speed combined with our personalization and craft, we have the system to do that. And then we also have the place and the space if the moment allows you to dwell and have a lingering conversation. So we can do both. And what you're seeing in our business is the winning in the morning around peaks is working. And then as you look through the balance of the day, we're seeing transactions grow in other day parts because we're meeting those occasions correctly. And where does technology fit into that? We keep hearing about, for example, how AI is going to improve productivity for companies in lots of industries.

7:35In your business, what role does it play? Yeah, look, technology is both a behind-the-scenes tool, and then it's also a way for us to make the experience have less friction. And behind-the-scenes is our smart queue technology, right? This is organizing orders and production time for the drive-thru, mobile order, cafe, so that we can hit those timelines that we want to hit for our customers. Then there are other things with, like, AI, where we're getting smarter forecasting, smarter supply chain management, smarter scheduling. And then there are other things where it's like we're piloting this right now, where when you pull up in the drive-thru, we still want you to have a person-to-person connection, but the order is actually being inputted by AI.

8:17So even though you're talking to a person, they're not having to now actually input the order because it's actually just going straight into our system, which then cues up the order because they know there's three cars in front of you. This is the time to start pulling the shot. This is the time to start making the egg bites. And then when you go all the way down to the app, I think it's going to be really exciting. You're going to be able to hold up your phone and say, you know what, I've got an appointment at 9 o 'clock. It's at this location. Find me the nearest Starbucks. I want my, in my case, vanilla protein latte ready at 845.

8:54Give me the directions. And it will just load the order in, give you the directions, and when you show up, your coffee is ready to go. So it is really a powerful tool that can make our baristas spend more time on the craft and the connection or give them more time to do that. And at the same token, give the customer access in ways they've never had access before. Yeah, I was reading about one of the technologies you introduced, Green Dot, which is a real-time assistant for baristas. I mean, does that help empower the baristas? Absolutely. Or is it helping them sort of enforce both the speed but also the kind of continuity that people expect, the standards that people expect from startups?

9:34Yeah, yeah. No, absolutely. It does all of those things because now it can also help solve problems. You know, if you have somebody call off, what's the right way to deploy for the day? You know, it also can help them if they're having to troubleshoot something, solve the problem at hand. And then also it has the ability to give them an idea of what their day might look like based on, you know, like in this case, it snowed. Right. So it's going to have a little different travel pattern or visitation pattern than we've had historically. So it definitely sets them up for success. And we've also got a really new exciting tool, too, for inventory counting, where you just hold up the iPad and it uses, I think it's LiDAR technology, to be able to count versus manually counting, which is really beneficial for managing supply chain.

10:25Customers, increasingly, they're on their phone, they're on their apps. They want to order their drinks online. For example, the office worker coming in at 9 to the local Starbucks and there's a crowd of people waiting for drinks. There are so many drinks stacked up. How do you sort of make sure that your baristas aren't overwhelmed? Yeah, well, look, we've got to make sure the team is staffed correctly and deployed correctly. And then behind the scenes, I think we can queue the orders. And there's another thing that we're piloting, which is scheduled ordering. So we're an on-demand business, but we can also be a scheduled order.

10:56You know, for some people, they know they're going to be at the office at 8 a.m. and they swing by their Starbucks every day at 7.30 a.m. Now you can just schedule that 7.30 a.m. coffee versus in the last minute just putting in the order. By being able to schedule certain orders, it smooths out the ordering process while still allowing us to do the on-demand orders. And it gives us the prediction so we can staff correctly. But I was going to say, I mean, if you have in a tall office building, you know, 100 people ordering for 9 o 'clock, how do you do that? Or do you kind of stagger it and say, actually, that's full?

11:29You even have to, well, you have to give promise times on those orders. Some of those orders will be ready in three minutes. Some of those orders will be ready in six minutes. Some of those orders will be ready in 10 minutes. Our goal is to not let any order take longer than 12 minutes and be on time when we give you the promise time. I wanted to ask you about labor. Hundreds of stores have unionized, but they're still awaiting a labor contract. Obviously, there are strikes still over pay and staffing levels. and there's disagreements from both sides about sort of why this is taking so long. You're the CEO.

12:04Can you tell us when we might expect a national labor contract? Yeah, look, I would love to get to a deal. It's got to be one that can be a viable, sustainable deal that will ensure our partners have a great opportunity to have a successful career at Starbucks. So, you know, wildly open to having that conversation and getting to that solution. With that said, I do think it's important to remind everybody we have one of the best jobs in the industry when it comes to retail jobs. One of the things that really was, I think, a surprise and delight was the low, low turnover that we have at Starbucks.

12:43It's around 50 percent. It's below 50 percent, which in this industry is traditionally over 100 percent. OK, so it is significantly lower. And, you know, you ask the question, well, why is the turnover so low? Well, the answer is in working part time, so 20 hours, you get access to health care benefits. You have access to a free education program through Arizona State. There's mental health benefits, parental leave benefits, and then not to mention the wage opportunity and the career growth opportunity. So it really is a special job. And that's why we get millions of applications for the jobs that we have available.

13:20So, you know, I'm really proud of the jobs that we have, and I'm really proud of our partners that are part of this company. But no date, no timeline. Look, you know, like I said, I'd be happy to get to a solution. It's just got to be one that's viable. I want to talk to you about affordability, cost of living, a huge issue around the world. How do you at Starbucks make sure that you don't stop being people's daily habit and start becoming a luxury? Is there a metric, a level that you're looking at where you say, oh, if we cross that, that's when sales start to collapse? Yeah, look, I mean, the thing that we keep an eye on is how do people perceive is it worth it, right?

14:02And there's a perception aspect, and then there is ultimately the experience that they have that gives them that perception, right? And what we have found is when we stay committed to the craft and the quality of the coffee, which we've never compromised on, and then you combine that with the humanity of the experience, people say this experience is worth it. And when you look at our brewed coffee pricing or our latte pricing, it's very competitive. You know, in some cases there is a premium, but you know what? There's no doubt in my mind we have the best coffee, and we are uncompromising on the quality and the experience that you're going to get.

14:40So we always have to keep an eye on it, but currently the feedback we're getting is, You know what? The brand is worth investing their hard-earned money into a Starbucks experience. And we're sitting here in New York. Do you worry at all about competition from foreign brands like Luckin, who maybe don't face the same business conditions, the same sort of regulatory oversight? How do you address that? Yeah, look, I've always told our team what we have to focus on are the things we can control. And the things we can control is the Starbucks experience and what makes Starbucks Starbucks. Starbucks and the competitors you mentioned, they don't offer what Starbucks offers.

15:16They don't offer the experience. They don't offer the humanity. They don't offer the craft or the connection that I think we have in our, or the community space that we have. So when we do all those things, we win. And our ecosystem of access, barista moments, the personalization, the quality that you get just is a winning proposition. We've got to stay on that offense. You talk about making a connection with customers, the importance of that as part of the turnaround plan. You are now going to be a founding partner of the 2028 Olympics in LA. Huge stage. What is your message there and how do you make sure it doesn't feel forced?

15:56Yeah, look, I think it's actually a really natural thing to be a part of because it is, the thing I love about the Olympics is it actually brings everybody together. You know, our family has fond memories of watching the Winter Olympics, the Summer Olympics, because we all get together with friends, and you're cheering on your team, in this case Team USA, but it really does bring the world together over sport, and we bring the world together in our coffee houses. So I think it's a perfect connection. We've got some great marketing around it. I'm excited about the new ads we're going to be running.

16:30There's a real human truth that we're bringing out, which is everybody does a coffee run, especially when you're getting together. And so I think people love seeing the advertising that the team has created. And, you know, I personally am just a big fan of the Olympics. I'm excited that the Milan Olympics are coming up, and I can't wait for LA28. Yeah, we've seen the ad with the guy on the motorbike. Oh, okay, you've seen it. On the speed. Yeah, it's great. Delivering coffee, as you say, on the coffee run. But what about the reputational risk for Starbucks if the event becomes politically contentious?

17:02I mean, is that something you've thought about at all that you're prepared for? You know, look, there's always that risk. But I think the overarching element of the Olympics is positive. And if there are elements that get politicized, I hope that isn't the case because I think it's such a pure event around this idea of people coming together and actually celebrating human achievement and having people talk about those successes. That's why you love the stories about these athletes. You know, a lot of these athletes, in some cases, are working at Starbucks while they're becoming world-class athletes.

17:40And we've got even a special program for that to support them on their journey of being an athlete, where we work with them on the schedule so that they can get the hours to compensate for the fact that they're going to be a world-class athlete. I mean, what are we talking here, special drinks, triple shots? Well, you know, I'm sure we'll have special merchandise to celebrate the Olympics. And, you know, Tressie, I'm sure, doesn't want me to share all her fun things she's got coming down the pike. But we'll figure out how to make it fun. And we'll also figure out how to make it a true celebration.

18:10Tariffs has been such a big issue for businesses around the world. What has that been like for you in terms of coffee, purchasing, you know, as a huge buyer of coffee beans? Yeah, look, you know, the tariffs created some headwind for sure. The good news is globally, there's no longer tariff on green coffee. So we'll get some relief from those tariffs probably in the back half of this fiscal year. We'll start rolling off of it. And then, you know, the coffee prices in general as a commodity really took off too. And that's starting to finally moderate as well. It's not all the way back to where historically it's traded, but it's well off of its big highs.

18:50So we should be getting some help on those input costs going forward. So where does that leave prices for customers this year? You know, look, pricing, we've not moved pricing over the last year. And it really is the last lever I want to pull. And in the event we do have to take some pricing, it should be fairly muted. You know, the good news is inflation has really come down in a meaningful way on all our input costs. So if we do have to take some action, it'll be minimal. Should investors expect a long, slow rebuild, or do you think the pace is going to pick up a lot this year? That's a great question.

19:28You know, I really do believe we've got the right plan in place so that over the long term, you're going to be really happy to be a shareholder of Starbucks, and you're going to be very proud to be a partner at Starbucks. And, you know, I've always said when I've come into this job, it's a real honor to be a part of an iconic brand and company. and my job is to make sure that we set up a plan that gets us results that are enduring and that's what we're after. So much of you know when you talk about and you describe the experience it reminds me of Starbucks roots as that third place somewhere between home and the office but the world has changed a lot since those sort of you know the days that kind of made Starbucks is it nostalgia or do you think there is still a place for that?

20:13I 100 % believe there's a place for that. And I think people want it. And I think they're missing it. And this is why I said earlier, I think we are going to become the benchmark for what great customer service and experience is because we're reestablishing what the third place is. And people like to be around people. And people really like to be around people from their local community. And, you know, look, even when you want to have a moment by yourself, I've noticed a lot of people like to be in a place where there's other people. And so I am 100 % confident that this is on trend with what people want.

20:47And it doesn't matter if you're eight years old to 80 years old, a third place is relevant. And when we can provide the third place that everybody feels safe, welcome, and a part of, I think the Starbucks brand is the solution. And clearly, I mean, there is this tension about, You know, you hear understaffing or staffing issues, the pressure that baristas feel to deliver on sort of the connection and the service levels. This seems to be something you've thought a lot about, you know, when we talk on the operational side. Absolutely. I mean, just recap again. How are you sort of addressing that?

21:26Yeah, look, the biggest thing we've done since I've gotten here is we've put a, I think it's$500,$600 million investment into our partner's ability to provide that service experience. and we want the rosters to be staffed correctly. We want to give them the guidance so that they're deployed correctly. And then we're going to give them the tools that make hopefully the job a lot easier to manage. You know, we've simplified a lot of things, especially the metrics that we ask you to be accountable for. There used to be this thing called the health pyramid where there were like, I don't know, 100, 200 metrics in here.

22:00We've simplified that down to five things. And the five things are in our partner's control. It's very visible for them. They'll be rewarded for it. What are the five things? So basically, it's going to be staffing correctly, customer experience, throughput, and in stock, being in stock on items. So, you know, that right there just simplifies what you need to be doing. And then also we're giving power back to the store where they can be accountable for the customer experience that they provide, as opposed to trying to manage these all things from a centralized location and use averages. The business is not an average business.

22:39The business is a coffee shop by coffee shop business with a coffee house leader. I had the opportunity to meet the coffee house leader here. You know, this is her store, right? She makes the experience for our partners. Not a spreadsheet, not averages. She does and her team. And we're setting them up to be successful for every experience that comes in. You've set the clear path for the things you can control. What about the things you can't, whether that's tariffs or cost of living prices or weather? I mean, what keeps you up at night? Look, you know, what keeps me up at night is making sure that our partners are set up for success and making sure that they can run this business for the long haul.

23:23And, you know, we're putting in assistant managers, which we're going to call coffeehouse coaches. The reason why that's important is so that a manager is there on every shift. And also that creates a development opportunity so that when we open, you know, thousands of stores down the road, we've got a pipeline of people that are ready to go and we can promote within. And when you promote within, your culture gets stronger. And so, you know, that's what I'm after is like, how do we make the culture stronger? How do we set people up to be successful in their role? And then how do we delight the customer so they're like, look, the third place I always want to be at is Starbucks.

23:57And so that's what we're after. The things you mentioned that I can't control, the best thing I can do is make sure I make Starbucks always on its front foot. Because when you're on your front foot, you can navigate and pivot accordingly. But one thing I know for sure is I don't know what's about to happen. Two years from now, if we're sitting down tracking again, what will be the measure of success? Look, you know, two years from now, hopefully we'll have all of our coffee houses uplifted so they'll have great seats. I think you'll see a really strong customer experience culture. I think you'll see our partners experiencing 90 percent promote within because we're building, you know, in at least around the world over 2000 plus new units.

24:41And I just think you're going to see the shine of Starbucks around the world. and you're going to see it show up in the numbers with comp and earnings. But I think the culture, this aspect of a true third place, and just this feeling that you can be really proud to be a part of Starbucks because you can grow your career here. And then you can be really proud to be a customer of Starbucks. Brian Nichols, CEO of Starbucks. Thank you very much for talking to us today. Yeah, thanks for having me. It was a lot of fun.

25:11Thank you very much to the Starbucks CEO, Brian Nichols. And of course, our North America correspondent, Michelle Flurry. And thank you for listening to Big Boss Interview. If you haven't done so already, then you can still subscribe on BBC Sounds, and you really should. You can also get in touch with us by email. It's bigboss at bbc.co.uk.