Starbucks’ turnaround will hinge less on equipment, and more on the staff, CEO Says

Key Takeaways

• Starbucks CEO Brian Niccol said recent earnings were disappointing, but he's confident the company's Back to Starbucks turnaround campaign is working.
• Niccol said the cafe chain has shifted to new labor models and algorithms to speed service. The high-tech Siren equipment is no longer seen as a general solution.
• The business still aspires as a hangout destination, and is redesigning the stores with this goal in mind.

According to CEO Brian Niccol who is confident that the company will soon capitalize on the shift in vibe, the Starbucks comeback campaign created a calm in coffeehouses. The shares need to make their own comeback.

Niccol told investors on a recent conference call that Starbucks (SBUX), after seven months of a turnaround plan to turn the company around, had disappointing earnings. Still, Niccol said the Back to Starbucks campaign was showing signs of progress—more customers are hanging out in stores and transaction declines are slowing—and guiding the company’s evolution. 

Starbucks will be relying more on its employees in the future, and less on their equipment. They will also explore baking products and consider a different afternoon menu.

Order Sequencing, Shift Trading—and Afternoon Snacks

Niccol said that an algorithm that sequences barista orders has been tested in 400 stores. It will be extended to other stores. Niccol said that the tool has helped stores serve customers at drive-thru lanes and in-store in less than four minute and to fulfill mobile orders in 12 minutes. These benchmarks were established to ensure mobile orders don't pile up on the counter, while lines grow and disrupt the store atmosphere, Starbucks has said.

According to a transcript provided by AlphaSense, Niccol stated that algorithm-driven workflow changes are “just a lot calmer.” “Partners are set up for success to connect and do their craft with our customers on every transaction."

Niccol said that the chain has reduced turnover by making it easier to trade shifts and pick up new ones. He said that Starbucks will rely more on its staff and less on high tech equipment such as the Siren system for making drinks, which will only be used in select areas.

“Over the last couple of years, we've actually been removing labor from the stores, I think, with the hope that equipment could offset the removal,” Niccol said, according to the transcript.  “That wasn't an accurate assumption."

Starbucks wants to encourage customers to spend more time in their stores and offers free refills. Niccol stated that the company is also redesigning its store designs, including different seating, to debut in New York City as well as Southern California. (Other recent changes include a change in the dress code, and more handwritten messages written on cups.

Cafe locations in the United Kingdom have baked and assembled food served in the store—a move Starbucks may try in the United States as it works to finesse its food and beverage offerings, Niccol said. Niccol said that Starbucks is also exploring a menu for the afternoon, “which includes sparkling beverages, coffee drinks and snackable bites.”

While shares of Starbucks jumped after Niccol joined last year from Chipotle, they’ve more recently fallen—and are substantially closer to 52-week lows than highs.