when Starbucks The baristas union resumed contract negotiations this week, and workers may have renewed momentum in their backs — thanks to the company's CEO.
Last month, the coffee giant found itself reporting a thematically challenging quarter. U.S. same-store sales fell 3% and traffic fell 7%. As a result, the company lowered its 2024 forecast.
CEO Laxman Narasimhan acknowledged that Starbucks was seeing a more cautious consumer when it comes to spending, but also mentioned the need to make improvements to stores as the company saw troubling trends. Starbucks reported incomplete mobile app order rates in the mid-teens and said occasional customers came in less frequently.
Narasimhan, in prepared remarks to Wall Street analysts, cited some of the challenges that unionized workers have highlighted as they try to improve working conditions.
“In our U.S. stores specifically, we focus on creating a more stable environment for associates through investments in equipment innovation, process improvement, staffing, scheduling and waste reduction, all things that our associates value and prioritize to create a more satisfying work environment at our company,” Narasimhan said in a statement. Connection with analysts: “Stores de-risk our business.”
He added in an interview with CNBC's “Squawk on the Street” that productivity has improved, and said the company's business plan will continue to build on that momentum through store improvements and better value communication.
“We have improved speed of service on a quarterly basis. If you look at the processes that we are implementing, especially in the peak period, what we are finding is that we have opportunities to improve that further through changes in the processes and tools that we are providing to partners,” Narasimhan said. “Peak.”
For United Workers, the union behind Starbucks' organizing, its recognition that more could be done was promising.
Recruitment challenges
The organizing effort began nearly three years ago in Buffalo, New York, under the leadership of then-CEO Kevin Johnson. At the time, Starbucks was a company long known for offering progressive benefits to workers.
But baristas, encouraged by their experience during the Covid-19 pandemic, have pushed for changes at the company's cafes. After more than 430 unionized stores and two CEOs, the two sides made “significant progress” in negotiating contracts, striking a more optimistic tone after a successful two-day session last month.
Starbucks and the union are meeting to continue working on the framework that will inform every single store contract moving forward.
“I think we see the company at this point recognizing that there are significant problems and issues,” Michelle Eisen, a United Labor delegate and original member of the company’s first organized union in Buffalo, told CNBC before the negotiations.
People picket outside a Starbucks store in New York's East Village on November 16, 2023.
Spencer Platt | Getty Images
“We heard Narasimhan make this statement after the earnings call that they realize the stores have had staffing issues,” said Eisen, who has been with the company for more than a decade and is among 150 delegates attending in-person negotiating sessions with the company. Starbucks on behalf of the union.
“I think this is a new world right now to be able to say that the CEO has stepped up and said, ‘Look, we have some problems, we know we have some problems, and we want to work on fixing those problems,'” Eisen said. “Union, with proposals on the table to help resolve these issues, this is exactly what I want to hear.”
In internal surveys and at bargaining committee meetings, union representative partners consistently rank “staffing and scheduling” as a top priority issue. The vast majority of represented partners report that they are often understaffed, and a slight majority of partners report that they are scheduled to work fewer hours than they want or need.
The union also called for improved wages and benefits.
Starbucks says it has made significant progress over the past two years regarding staffing and scheduling. The advanced staffing model is able to take into account both historical trends in hours assigned to each store, but also current trends, types of products available and upcoming promotions, the company said. Starbucks says its data confirms that associates are now getting more hours and that associate retention and morale have increased across the U.S. as schedules have become more stable and consistent.
Orders arrive
Staffing improvements are likely to be more significant as Starbucks expects an increase in traffic and orders.
In July, Starbucks plans to open its mobile ordering and payment app to non-rewards members in an effort to win back its casual customer base. This will create the ability to target all customers with new products and promotions in an effort to increase traffic.
It is also set to introduce what it calls the Siren System: new equipment and protocol for processing customer ticket times. The Siren system includes a custom ice dispenser, milk dispensing system and faster mixers to reduce barista steps and get drinks to customers faster. It will reach 1,000 stores in July.
“It's a terrible feeling to be on that floor and pull up a poster and look at the time and then look at the clock on the wall and realize you're already 8 minutes late,” Eisen said of mobile ordering.
“Eight minutes doesn't sound like a lot. But when you produce 100 transactions in half an hour…and you realize you probably backed up 20 drinks, that's a bad feeling,” she said.
There was another call for change at Starbucks stores that may have weight at the negotiating table. Management needs to spend more time with workers to understand ongoing challenges, former Starbucks CEO Howard Schultz said in a LinkedIn post after the company's earnings report.
This was the third time he had publicly made comments about Starbucks and its operations since leaving the company and its board of directors last year. It has been a marked shift in tone since Schultz returned to the company in 2022 to respond to the union challenge, with a far more combative stance.
Narasimhan was mentored by Schultz for six months before taking the helm of the company, spending time in stores with baristas, and even earning his barista certification before becoming CEO in 2023.
“I emphasized that reforming the company had to start at home: U.S. operations are the main reason for the company's fall from grace,” Schultz said. “Stores require an insane focus on the customer experience, through the eyes of the merchant. The answer doesn't lie in the data, it's in the stores.”
At the time, the coffee giant said in response: “We always value Howard's perspective. The challenges and opportunities he highlights are ones we are focused on. Like Howard, we are confident in Starbucks' long-term success.”
