Starbucks’ New CEO Tells Investors He Plans to Follow the Schultz Roadmap

Investors got a long-awaited glimpse of Starbucks’ future under CEO Laxman Narasimhan Thursday, when the company unveiled an updated strategic plan.

The so-called “Triple-Shot Reinvention Strategy,” which the company announced at an investor event in New York, comes nearly eight months after Narasimhan took the company’s reins from former CEO Howard Schultz.

The event was the first time many investors heard from Narasimhan about his long-term vision for the company. Those who feared a drastic about-face now that Schultz has stepped away can rest easy: Narasimhan describes his new plan as relying “on the foundation” of the reinvention plan laid out by Schultz in September 2022.

“This huge focus on my part, on my team’s part, over the last year to build the foundations—that is continuing,” Narasimhan said in an interview with Barron’s. “All we’ve done here is to say ‘Hey, there’s further stuff [to do] about the store, there are things to do in innovation that we can bring in.’”

Triple-Shot will focus on three areas intended to propel the next stage of the company: improving the store experience, scaling its digital capabilities, and expanding its global footprint. The plan also seeks to increase efficiency and reinvest in its employees.

The company believes the strategy paves the way for long-term revenue growth of 10% or greater, and earnings per share growth of 15% or greater. Long-term guidance issued in 2022 called for revenue to grow between 10% to 12% annually through 2025, and earnings per share to increase between 15% and 20% in that time. Same-store sales will grow by at least 5%, Starbucks said Thursday. Last year, the company forecast they would grow between 7% and 9% annually.

Starbucks also announced a $3 billion cost savings plan, set to be implemented over the next three years.

The company’s store expansion plan is largely unchanged. Starbucks is reiterating its aim to operate 55,000 stores by 2030, an increase of 45% from its current tally of about 38,000. Most of these new store openings will be outside North America, Starbucks added.

Starbucks rewards members are expected to double from the current 79 million within the next five years.

Here are more takeaways from Thursday’s event.

Narasimhan Sees Better, More Efficient Stores.

The pandemic was hard on Starbucks stores, Narasimhan told Barron’s. The early stages of the lockdown snarled supply chains and closed off cafes. Many locations pivoted to drive-through and mobile-order only formats—and in the process, trained customers to drink their coffee on the go, analysts say.

Although grab-and-go is typically a more profitable business model than the company’s traditional sit-down cafe model, it comes with a new set of challenges. Perhaps the biggest is the impact on baristas. Some baristas told Barron’s that their jobs have gotten more stressful with the rise of mobile ordering and delivery, as they now have to juggle an onslaught of orders that, in some cafes, have turned every hour into rush hour.

“A lot of things didn’t go the way that they normally do for a company that was focused on human connection,” Narasimhan said.

Triple-Shot aims to streamline baristas’ work every step of the way—from overhauling back-end procedures, such as recording inventory, to improving daily minutiae, like the way customers pick up their orders. Part of this effort includes opening stores with new layouts, like drive-through only or delivery only, to better serve the needs of the local market. Starbucks is planning on increasing the number of take-out only or delivery-only stores, both of which comprise 1% or less of the current store portfolio. By 2025, Starbucks aims to redirect 40% of delivery orders to delivery-only stores.

Through its investment in efficiencies, the company says it can cut more than $3 billion in costs over the next three years up and down the supply chain. It plans to reinvest those funds in the business and to deliver shareholder returns.

Investments in Employees Will Continue

Starbucks announced plans to invest $1 billion in employee initiatives, including installing new technology in stores, raising wages, boosting benefits, and improving scheduling. Since 2020, hourly total cash compensation has increased by nearly 50%. By 2025, the company plans to double hourly incomes compared with 2020 through more hours and higher wages.

This is the second round of workforce investment Starbucks has rolled out since it started dealing with a rise in unionisation activity two years ago. The first billion-dollar round was announced in May 2022, and was funneled into pay raises, additional training, and better technology in stores.

Some union members and politicians have criticised the way Schultz and the company handled the company’s early stages of unionisation. They point to dozens of complaints the National Labor Relations Board has filed against the company, and Schultz’s public comments that unions were contrary to his vision for Starbucks. A month after Narasimhan took control of the company, a group of more than 40 of the union’s allies sent him a letter, urging him to “create and build a healthy working relationship with unionised partners.”

Close to half a year later, Narasimhan’s stance on unionisation is still a bit of a mystery, investors say. When Barron’s asked him how the employee investments factored into his and the company’s perspective on unionisation, he said he would only talk about the partner investments. The company has long emphasised the investments made in its workforce when asked about unionisation efforts.

“We have a holistic view of the kind of bridge that we provide our partners to a better future and it is grounded in the idea of a strong operating culture,” he told Barron’s. “It is grounded in the idea of human connection. If you look even at our mission, every word in that mission is about giving the barista agency.”

Global Expansion and China

China has become Starbucks’ second largest market after the U.S. On Thursday, the company reaffirmed its commitment to growing in the country despite rising operational challenges.

“I’m really bullish on China, in the long run,” Narasimhan said in an interview.

He added that the company was also planning on expanding even further in other international markets. Three out of four new stores over the near term will be opened in markets outside the U.S., including in Southeast Asia and Latin America.By 2030, the company plans to have 35,000 stores outside of North America. As of Oct. 1, it had a little over 21,000 international stores.

Starbucks stock closed 9.5% higher Thursday, buoyed by a stronger-than-expected fiscal fourth quarter. Shares were largely unchanged in after-hours trading, up 0.2%.

As Paris makes its final preparations for the Olympic games, its residents are busy with their own—packing their suitcases, confirming their reservations, and getting out of town.

Worried about the hordes of crowds and overall chaos the Olympics could bring, Parisians are fleeing the city in droves and inundating resort cities around the country. Hotels and holiday rentals in some of France’s most popular vacation destinations—from the French Riviera in the south to the beaches of Normandy in the north—say they are expecting massive crowds this year in advance of the Olympics. The games will run from July 26-Aug. 1.

“It’s already a major holiday season for us, and beyond that, we have the Olympics,” says Stéphane Personeni, general manager of the Lily of the Valley hotel in Saint Tropez. “People began booking early this year.”

Personeni’s hotel typically has no issues filling its rooms each summer—by May of each year, the luxury hotel typically finds itself completely booked out for the months of July and August. But this year, the 53-room hotel began filling up for summer reservations in February.

“We told our regular guests that everything—hotels, apartments, villas—are going to be hard to find this summer,” Personeni says. His neighbours around Saint Tropez say they’re similarly booked up.

As of March, the online marketplace Gens de Confiance (“Trusted People”), saw a 50% increase in reservations from Parisians seeking vacation rentals outside the capital during the Olympics.

Already, August is a popular vacation time for the French. With a minimum of five weeks of vacation mandated by law, many decide to take the entire month off, renting out villas in beachside destinations for longer periods.

But beyond the typical August travel, the Olympics are having a real impact, says Bertille Marchal, a spokesperson for Gens de Confiance.

“We’ve seen nearly three times more reservations for the dates of the Olympics than the following two weeks,” Marchal says. “The increase is definitely linked to the Olympic Games.”

Worried about the hordes of crowds and overall chaos the Olympics could bring, Parisians are fleeing the city in droves and inundating resort cities around the country.
Getty Images

According to the site, the most sought-out vacation destinations are Morbihan and Loire-Atlantique, a seaside region in the northwest; le Var, a coastal area within the southeast of France along the Côte d’Azur; and the island of Corsica in the Mediterranean.

Meanwhile, the Olympics haven’t necessarily been a boon to foreign tourism in the country. Many tourists who might have otherwise come to France are avoiding it this year in favour of other European capitals. In Paris, demand for stays at high-end hotels has collapsed, with bookings down 50% in July compared to last year, according to UMIH Prestige, which represents hotels charging at least €800 ($865) a night for rooms.

Earlier this year, high-end restaurants and concierges said the Olympics might even be an opportunity to score a hard-get-seat at the city’s fine dining.

In the Occitanie region in southwest France, the overall number of reservations this summer hasn’t changed much from last year, says Vincent Gare, president of the regional tourism committee there.

“But looking further at the numbers, we do see an increase in the clientele coming from the Paris region,” Gare told Le Figaro, noting that the increase in reservations has fallen directly on the dates of the Olympic games.

Michel Barré, a retiree living in Paris’s Le Marais neighbourhood, is one of those opting for the beach rather than the opening ceremony. In January, he booked a stay in Normandy for two weeks.

“Even though it’s a major European capital, Paris is still a small city—it’s a massive effort to host all of these events,” Barré says. “The Olympics are going to be a mess.”

More than anything, he just wants some calm after an event-filled summer in Paris, which just before the Olympics experienced the drama of a snap election called by Macron.

“It’s been a hectic summer here,” he says.

Hotels and holiday rentals in some of France’s most popular vacation destinations say they are expecting massive crowds this year in advance of the Olympics.
AFP via Getty Images

Parisians—Barré included—feel that the city, by over-catering to its tourists, is driving out many residents.

Parts of the Seine—usually one of the most popular summertime hangout spots —have been closed off for weeks as the city installs bleachers and Olympics signage. In certain neighbourhoods, residents will need to scan a QR code with police to access their own apartments. And from the Olympics to Sept. 8, Paris is nearly doubling the price of transit tickets from €2.15 to €4 per ride.

The city’s clear willingness to capitalise on its tourists has motivated some residents to do the same. In March, the number of active Airbnb listings in Paris reached an all-time high as hosts rushed to list their apartments. Listings grew 40% from the same time last year, according to the company.

With their regular clients taking off, Parisian restaurants and merchants are complaining that business is down.

“Are there any Parisians left in Paris?” Alaine Fontaine, president of the restaurant industry association, told the radio station Franceinfo on Sunday. “For the last three weeks, there haven’t been any here.”

Still, for all the talk of those leaving, there are plenty who have decided to stick around.

Jay Swanson, an American expat and YouTuber, can’t imagine leaving during the Olympics—he secured his tickets to see ping pong and volleyball last year. He’s also less concerned about the crowds and road closures than others, having just put together a series of videos explaining how to navigate Paris during the games.

“It’s been 100 years since the Games came to Paris; when else will we get a chance to host the world like this?” Swanson says. “So many Parisians are leaving and tourism is down, so not only will it be quiet but the only people left will be here for a party.”