E88 – The Impulso Podcast – Why Starbucks ousted 3rd chosen successor of Howard Schulz?

Starbucks has replaced CEO Laxman Narasimhan with Chipotle CEO Brian Niccol, in hopes that he can help revive Starbucks fading sales.

Since the beginning, Starbucks has had an interesting and evolving history of CEOs. What does this new leadership change mean for Starbucks? Is new leadership all that is needed for Starbucks to turn the tide?

Tune in to the latest episode of the Impulso podcast as we explore Starbucks’ leadership history, the challenges the company is currently facing, and examine why some founders/leaders just can’t seem to leave.

Also available on Spotify and Apple Podcasts.

Featured materials:
Momentum Works Immersions: F&B innovations
E86: Luckin Coffee opens 20,000th store, The Impulso Podcast
E76: Starbucks vs Luckin in China, who is winning?, The Impulso Podcast
E70: Succession – successful tech founders’ dilemma

[AI-generated transcript]

Sabrina: [00:00:00] Hello everyone. Welcome back to episode 88 of the Impulso Podcast by Momentum Works. So today we’ve bought Starbucks because we’re actually going to be talking about Starbucks. And if you’ve been following the news, you’ve probably heard that Starbucks has recently announced a change of CEO.

Laxman Narasimhan, which was the previous CEO of Starbucks is going to be replaced by Brian Niccol, who used to be the CEO of Chipotle, right? And this is a topic that’s being covered pretty extensively in the media right now. I think a lot of media has been talking about this and they’ve been 

Jianggan: We have been subscribers to financial times that every day there’s like two articles about this, about, I mean, the challenges to brand Niccol and a lot of analysis about, I mean, how he turned it out Chipotle and how things will be different at Starbucks, because ultimately Starbucks is a much bigger organization.

Chipotle is what? 900 stores? 

Sabrina: Yeah. 

Jianggan: A few thousand. 

Sabrina: I think, and they’re not as global as Starbucks. 

Jianggan: They’re mostly in North America, right? Starbucks has like 38, [00:01:00] 000 stores. Yeah. And it has a large presence of basically in China and also in other countries. 

Sabrina: Yes. And this is something that we’ve spoken about previously in a couple of podcasts.

We do talk about coffee brands quite frequently here on this channel. And we do talk a lot about the challenges faced by Starbucks, particularly in China, right? Because one of the companies that we look at quite often is Luckin Coffee, which is one of the biggest mass coffee chains in China. And they’ve been giving Starbucks a lot of.

I wouldn’t say problems, but they’ve been challenging Starbucks a lot in China, right? 

Jianggan: I know lots of friends in different cities in China. I mean, tier one sort of middle class and above consumers. And before the pandemic, everybody would like, no, go to Starbucks for meetings and buy a coffee like every morning, every afternoon, but Starbucks is not cheap in China.

It costs about 30 Yuan, which is about a five, six US dollar. Yeah, about five US dollars per drink which I think even in a country like China, you would still have a fairly limited consumer base. So now they have expanded about 7, 000 stores. So [00:02:00] Luckin came in and squeezed the operations and made it very efficient and they can offer drinks at the 9.9 yuan, which is like 1. 4 US dollars. And I think. After the pandemic, a lot of things have changed. First is that the premium consumers. Are not feeling ashamed, like, buying things, which are cheap. I was sorry, just to side track a little bit. I was talking to a friend who runs premium hotels in China, and he was saying that every hotel category in the mass.

Above the mass market is seeing a shrinking sort of user numbers. So basically it’s not that people are not consuming, but it’s people are saying that, okay, previously I want to consume one class before I can, what I can afford regularly. Now I consume something which is commensurate to my sort of income levels and my saving level.

 So I think this is something which is happening to Starbucks. I mean, Lucky is a Respectful brand. It has lots of new products and I think consumers feel okay. I mean, do not having to show off that, okay, they’re drinking [00:03:00] expensive coffee.

Sabrina: It’s no longer seen as like a branding status.

Jianggan: No. 

Sabrina: So interested. We do talk about Starbucks versus Luckin quite extensively in one of our previous episodes. So I will link that in the show notes below where we talked about their Q1 earnings this year. 

Jianggan: And last weekend I was in Malaysia and I went to a few business shopping malls to check out the landscape for retail and FNB.

And I just realized it’s quite noticeable that many of the Starbucks and Burger Kings are. Empty because there’s a boycott because of what’s happening in the Middle East. So, and it has been happening for a while. I mean, the war has been going on for like more than half a year and the foot traffic of all the American brands in many of the Muslim countries have been dropping a lot.

 So, of course, it’s a crunch time and I think Starbucks the former CEO, right? The founder of like is that the pronunciation? We have a German here. Anyways. So basically it’s it’s tough time for [00:04:00] them. And of course the , CEO Laxman Narasimhan was handpicked by Howard Schultz and he shadowed Howard for, 

Sabrina: yeah.

So he shadowed Howard for a while. When Howard came back in about 2022 during the pandemic. Mm-Hmm. . He came back and Laxman actually shadowed with him for a while and I think he worked on the ground as a barista as well. 

Jianggan: Mm.

Sabrina: Does that seem to work? Did it seem to work out? 

Jianggan: Have you watched that show?

I can’t remember the exact name. The People’s Servant by Volodymyr Zelensky, the current president of Ukraine. Before he was elected president, he played in this comedy where he was a school teacher and the one day one video of him got viral and he was elected as president and all the funny things that happened when he was becoming president.

The 1st thing is that president is to see how, how lives of ordinary people are like, so they showed him to the bank, et cetera, et cetera. And it turned out later that I mean, the bank branch he went to, like. Every customer and every employee Was basically for a secret [00:05:00] service acting as a customer.

So that’s so that sort of president will see that. Okay. The country is functioning. Okay. I’m not sure whether that’s the case with Starbucks, but clearly, I mean, he spent enough time on the ground. Does that give him enough insights? Yes, maybe and he want to act on this insights. I think definitely. So would he have enough time to work on it?

Not sure. I think he announced some strategy, right? 

Sabrina: The triple shot reinvention with 

Jianggan: two pumps. So, this is something, I mean, if you talk to someone on the ground, they will say what the hell, what the hell is this, right? So it shows a very, very strong strategy and consulting background in play.

Sabrina: He has a consulting background, right? 

Jianggan: Yeah, he has a consulting background. So of course, I mean, when things are going okay, nobody’s going to say anything, but when things are going sour and everybody starts to like, you Try to blame someone and it just happens that whatever he said, or I mean, he also said that you can’t work after 6 PM or something like that.

So if I see someone working after 6 PM, there’s a [00:06:00] problem. So when things go not so okay, and all these things get picked saying that, Hey so it’s you not encouraging people to work hard, not fixing the problems. Is that really the case? No, we don’t know enough to figure out. Yeah. 

Sabrina: Interesting that you brought up his background because what we talked about, I’m pretty, I think it was in last week episode.

So when we spoke about Chagee was Chagee’s founder’s background, right. And how he really came from an operations background. And of course that changes the way that he leads the company as the CEO. So I think that’s the difference between maybe somebody who has. Consulting background versus somebody who has experience working on the ground.

And this is something that Howard should actually try to encourage. She wants his executives to go on the ground and see what’s really happening, right?

 I think a few weeks ago when Starbucks announced their declining results, I think the previous quarter, he already voiced his concerns on LinkedIn.

Jianggan: He was saying that, okay, people, The management need to spend enough time on the ground, talking to customers, talking to partners, that I think along the lines of this is the core of Starbucks. And [00:07:00] I’m sure the management listens to it. I’m sure the management wants to do something, but circumstances are probably difficult for them to.

To manage everybody’s expectations. 

Sabrina: So have we mentioned Howard Schultz a lot? So maybe I’ll just give a little bit of background to our listeners who might not be familiar with Starbucks, very interesting history of CEOs. So Howard Schultz, the guy that we’re mentioning he actually bought over Starbucks in the nine, 1980s from the three original founders and since then he was the ceo while he was the ceo He the company actually went public and in the 2000s He retired and then of course A lot of things happened and in the 2008 financial crisis He was asked to come back by some of the stakeholders.

So, I mean, it wasn’t just a financial crisis, right? When we talk about Starbucks, we know that in around 2003, Starbucks started experimenting with a lot of different things. They tried going into music. They signed Paul McCartney. And then of course, stock prices were dropping. And then Howard was [00:08:00] asked to come back in 2008.

And of course, when he came back, he started Repositioning Starbucks as a third place. I think this was the first time where Starbucks really established itself as a third place outside of like home and office. It became a place for community, for people to meet. And then he retired again in 2017 and then, of course there was another CEO and in 2022, during the pandemic, he came back and this was when Laxman was shadowing him as well as when he worked as a barista, right? And he left in about 2023 when Laxman took over. And now it seems that Laxman has been replaced by Brian. Right. And of course, Schultz has made it clear that he doesn’t want to return, first of all, 

Jianggan: as I was talking to colleagues this morning, right?

I mean, in Chinese, there’s a saying called 事不过三 (shibuguosan), you can’t do the same thing more than three times. So he has returned as CEO, what 

Sabrina: three times 

Jianggan: he has ousted, like three, three, three times. Like successors. So he can’t come back and name another successor and also the person again. [00:09:00] But if you look at the timeline, it’s kind of interesting, right?

 He left around 2000 and he came back in 2008, right? So that’s during the 

Sabrina: financial financial 

Jianggan: crisis. And obviously, I mean, lots of the things that the Starbucks were doing before that was he seemed okay, but because the crisis and everything got accelerated and the problems got exposed.

So then he tried to retire in 2017. Then a few years later, obviously the pandemic happened and he had to come back in a way. I mean, somebody has to come back to take the leadership position. And I’m sure when he was away, so I’m actually reading this book called onward by Howard Schultz.

And of course, written by someone else. And he told his journey and he’s thinking and doing this entire process of, okay, I built Starbucks. I want to retire. I’m picking a successor. And okay, I’m willing to let it go. But a few years later, I realized things are not going the way.

I wanted to go and I needed to make some actions. I talked to executives at Starbucks was still loyal to me, et cetera, et cetera. Then we did something. [00:10:00] And the things that a couple of things, which I find interesting first, many of the handpicked CEOs initially are there to say that, okay, I’m going to follow through the strategy that you have set.

 I think this is reasonable, right? Because if you look at this organization, I think Howard Schultz left definitely a very, very deep imprint and many people, I think from top management to the ground baristas are still loyal to him because I mean, he’s the spiritual leader, right?

 So it’s hard for any successor, especially a successor picked from outside to say that, okay, I’m going to change things. I’m going to have new strategy. I’m going to reinvent things because people are going to revolt and people are going to go to Howard saying that, Hey, this guy’s changing your things.

 So obviously everybody chose to somehow follow the strategy. He did and gradually add things on their own so that they can change things. But. The funny thing is that this is not unique to Starbucks in this book, he said that if he, when he was about to replace Jim Donald, I think back in like 2007, [00:11:00] 2008, he was on a holiday with

I can’t remember exactly where it was, but Michael Dell, the founder of Dell computers was staying like a few sort of miles away from him. So they would meet regularly. And they all told him that he did the same thing, right? He handpicked the successor. And he mentioned that things didn’t work out and he had to go back and fix things.

And when we expand that even a bit more, you would see that, so for instance, we see what’s happening at Disney, right? I mean, Bob Iger handpicked Bob Chapek, a few years later he had to come in and kick Bob Chapek out. Sorry, this is not German name, right? Okay. IGER is that German name? No.

Okay. Sorry. And they look at what’s happening in China with Alibaba, right? I mean, so Jack Ma handpicked Daniel Zhang as a successor in the beginning. He gave the full support. But a few years later, the co founders had to come back and lead in one way or another. Kick the Daniel Zhang out and the co founders are back in charge.

 So we see something common here [00:12:00] that’s happening in many organizations. And sometimes we’ll even see that in countries, right? I mean, in those countries where the political leadership and pick the successor and because of the huge sway of the previous leader. I mean, the success say, in democratic setting, right?

The success is able to win the elections, but a few years later, they will fall out. I mean, the success will be criticized by the guy who left him to be in charge. So succession seems to be complex. 

Sabrina: Yes, this is something that we’ve discussed before in episode 70. So the episode is titled Succession, Successful Founders Dilemma.

And it’s a very interesting episode. It will be linked in the show notes. You guys should check it out. We talk about how we’ve seen Founders or co founders seem to have trouble leaving a company and finding a replacement for themselves. Right. So we see at Alibaba, Disney, at Starbucks, we’ve also seen it happening at Meituan.

I think that was why we were talking about the whole episode in the first thing is because of the Maytown leadership changes at the time. And what we mentioned during the episode was that in these organizations where, like you [00:13:00] mentioned, the founders have so much influence, it’s very difficult for a newcomer to come in and take over, and we’ve also mentioned Founders have an advantage in making mistakes.

They are able to retract. They are able to step back and the organization would still trust them. But of course, when a newcomer comes in, the trust between the leadership and the organization more often than not is lacking. 

Jianggan: That’s actually a very good point because Is the trust with the organization and also the trust of the capital market, right?

The investors who are sending you or your stock prices up and down, giving you lots of pressure or lots of adrenaline. So yeah I think the trust is absolutely important here and it takes time for someone new to establish that. I’m not sure if the politics of Kazakhstan.

Okay. You know where Kazakhstan is? Yes. Good afternoon. Okay. So basically Kazakhstan is one of the biggest countries in the Eurasian continent. I mean, geographically as big, almost as big as India population only 20 million. And then lots of natural [00:14:00] resources. So since the Soviet Union collapsed, so Nursultan Nazarbayev was the president for almost 20, I think, 20 plus years.

And the day he hand picked someone called Tokayev to succeed him a few years later, and Tokayev initially said that, okay, I’m going to. Be very loyal to you and I’m renaming the capital from Astana after your first name. And I’m going to like, you know, sort of keep your family in control of the key institutions a few years later.

And to Tokayev managed to steer the country away from Nazarbayev. And I think you guys probably know that last year or the year before there was. Was a riot in Kazakhstan. The Russians actually sent Army to help them restore order. And Tokayev used that as opportunity to get rid of all the Nazarbayev clans and er full control.

And, he then immediately went to meet with Putin and with Xi Jingping and, rare cases where the handpicked successor managed to topple the guy at the bank bench. I know this has been a [00:15:00] bit drifting away but I think we have something similar here, right? So if you are Handpicked the successor of a very successful and not necessarily successful, but very sort of a respected, very trusted founder or long term CEO, you’re going to have a hard time because If the business performs as it is you are probably not going to get much credit because it’s the guy who set up a strategy.

If you follow the guy’s same strategy and the business goes wrong and you do take all the blame. So it’s actually a tough position to be in and it requires someone extraordinary to be able to take this over and run. 

Sabrina: So you talk a lot about strategy, but of course, you know, that’s the thing, right?

Culture eats strategy for breakfast. And I think the problem, a lot of these leadership phase, when they are like leadership changes is that they are following the strategy, either their own strategy or the strategy set up by the founder. But. The organization and the people that are just not ready to trust them, or they’re unable to convince the [00:16:00] organization to go with them along to achieve this strategic plan.

Jianggan: Which is interesting because we see a lot of the sort of incoming CEOs and stuff. I mean, they spend a lot of time trying to convince capital market, et cetera. And essentially whoever who’s coming in to take over the organization, I mean, I did that once a few years ago.

I was partially into organization. Because the previousCEO had vis problems coming into the country anyway. So strange circumstances, 130 people and I had to manage that. And I mean, of course it’s very small compared to Starbucks, but you can see that I mean, as a newcomer you are facing lots of resistance and people say, who are you?

I mean. I’ve been working here for eight years and why are you parachuted here to, to lead me? And you don’t even know the business. So even if Narasimha spent six months as a barista, I mean, it’s nowhere near the long time left, left tenants of the whole world who has been there for, I mean, sometimes decades, right?

 So it’s hard to gain their trust and and it requires the person to be very, very [00:17:00] skillful in navigating people dynamics and the strategy is it’s one thing they need to have but it’s definitely not a key success factor here. 

Sabrina: I think this is very similar to something we talk about. So in Jianggan’s book, Seeing the Unseen, you guys have the pop-L structure, right?

So, Yeah. Yeah. Cool. 

Jianggan: People, organization, 

Sabrina: organization, product, and leadership. So when we’re talking about situations like this, it’s not always just the leadership, right? Just having a good leader sometimes isn’t enough. You also need, 

Jianggan: what defines a good leader, right? I mean, if the leader can’t steer the people and organization, that’s not good leader.

Sabrina: So this is right. So should the leader fit their strategy to suit the organization’s culture or should the leader try to change the organization culture to suit their strategy? 

Jianggan: I think let’s put it that way. So changing strategy is very straightforward. And the changing organization is much more difficult.

I think the leader has to pick his bad battle. Right? I mean, if you want to change organization. You need to probably buy your time and make making incremental sort of maneuvers, because if you want to do something too drastic, you are going to make lots of [00:18:00] enemies within organization and chances are.

Unless you have the full authority, like Elon Musk, he bought Twitter, he’s a shareholder, he doesn’t care. Right? But otherwise you have the board to answer to, you have the investors to answer to, I mean, things are very different. Mm hmm. 

Sabrina: So what do you think is a good example of a company or a leader who’s managed to successfully take over from the founder?

I mean, they didn’t have to kick the founder out, but they were able to successfully implement their own strategy into an organization. What do you think is a good example of that?

Jianggan: I think almost the stances. I see that when the founder announced the retirement, they’re not fully retiring. So you know that in Pinduoduo, I mean, Colin Huang announced he was retiring a few years ago, and everyone knows he’s still in charge.

 But a good thing is the people who are CEOs now, I mean, same for, for Bytedance as well, are his long time lefthanders. They’ve been working together for like a decade or more. So these are the people who have the full trust of the founder and they’re better aligned than somebody who is sort of handpicked from [00:19:00] outside, have like six months, a honeymoon period to do the training.

I mean this is some people that have been working with for decades. And of course, the trust level is very different. And when we go back to history, there’s lots of lessons, right? I mean, you probably know that in China, the Tang Dynasty was one of the strongest across the Chinese history.

The second emperor who basically was revered back then in China proper, as well as in the grasslands, in Mongolia and stuff, he The way he exercised control is that he staged a coup. He killed his brothers and he forced his father to abdicate. But then that’s different because he realized that, I mean, the generals, the ministers were loyal to him, not his father.

And if you look at imperial history, even if you look at European history, you have lots of examples like that. I mean, how do you influence people? How do you inspire people? And how do you get loyalty from people? So that you can move things.

Same if you want to change the culture, you need to motivate people unless you are like, you know, Elon Musk, you can change other people. 

Sabrina: I guess that’s what makes a good [00:20:00] leader, right? You have the ability to influence and change people. So maybe coming back to Starbucks. So of course now they have a new CEO, Brian Niccol.

Jianggan: Yeah. He was known as the Brian Nicosts apparently at the Chipotle because he was very, very strict at cost. 

Sabrina: So now that he’s at Starbucks. What do you think are some of the changes he would make, or do you think he would be able to help improve startups challenges? I 

Jianggan: think it’s the operational issues that happen in the US, right?

The overly complex menu and the long queues the unionization of baristas. These are technical problems that under the US context, you can fix. I mean, this is not like fundamental problem with a brand or with a changing market. These are the things you can fix. The problem is, I mean, the issue with what you are facing is many of the Muslim countries because of the Israel Palestine conflict.

 This risk is always there, but this risk is not only concerning you, right? I mean, McDonald’s, Burger King, et cetera, are facing the same thing. So you should not be too worried about that. I think it [00:21:00] was tricky for Starbucks is what’s going in China, right? They have 7,000 plus stores, the sales dropping, I mean, you go to shopping malls, the Starbucks are visibly empty and you just have no good solution there.

 So what can you do? You can’t lower the prices to compete against Luckin because you will never be as efficient as they are. What should you. One possibility. I mean, some animals have surfaces is what young brands did, right? The span of in China to run it on its own and and KFC, Pizza Hut, et cetera, are still fairly successful in China.

And we talked about , KFC’s coffee business. It’s very, very successful in China. And, uh, And they have a good local leadership , and, uh, and the interest is fully aligned and they’re able to make decisions locally quite fast. So is that something that Starbucks is willing to take? I don’t know. I think that depends not only on Brian Nicol, and but it has to depend on all the stakeholders. I mean, how they come together. So I think Brian Nicol now, I mean, everybody says that they give the full confidence to Brian Nicol, but everybody also gave the full confidence to Laxman Narasimha in the very beginning.

 [00:22:00] So I think Brian would know that and he would tread very, very carefully. 

Sabrina: China itself is just a completely different market, right? Compared to the U S of course, it’s so much more competitive. Your competitors are so efficient. When we look at the coffee scene in China, even though it wasn’t very big several years ago, now there are so many new coffee chains and it’s not just Luckin coffee, right?

That’s cotti coffee, which is coming out and trying to compete against Luckin coffee, then of course there’s a bunch of other coffee chains as well. And it’s not just coffee. When you talk about. F& B brands. There are so many F& B brands in China. It’s so competitive. And now a lot of these brands are also coming out.

Jianggan: They have to, I mean, Mixue and Luckin is already doing fairly successfully in Southeast Asia and Chagee opened in Singapore, which we talked about the last week and the previous week. And you have a lot more, which are coming out. So in Singapore, you feel it, right? You go to more, especially you go to basement one.

The fast food brands, you see lots of new Chinese brand coming in. I mean, it’s the same thing that you are seeing in Kuala Lumpur and you are seeing in Bangkok, [00:23:00] same thing you are seeing in Jakarta. So this guys are coming out and they have the supply chain advantages. They have the operational efficiency.

So how do you deal with it? 

Sabrina: I think a lot, that’s a lot of, that’s the issue, right? A lot of local players are not prepared to deal with this competition from China because a lot of them are unsure of how these Chinese companies actually operate, which brings me very, very smoothly to our next point in that Momentumworks is doing a F& B innovation immersion to Changsha, China in November this year.

So, Jianggan, maybe you can share a little bit more about what we’ll be doing on this immersion. 

Jianggan: I think we talked about that in the previous episodes, right? Changsha is East F& B capital and East cuisine is spreading across China as Sichuan cuisine was like a few years ago. And the level of competition, the level of supply chain sophistication there is just mind boggling.

I’m not going to reveal too much. You just do it for yourself because no matter how much I talk, you will not feel the same, right? 

Sabrina: Yes. Seeing it in person, I think it’s completely different [00:24:00] from hearing someone talk about it. 

Jianggan: And this is something, I mean, of course, it’s the first time we’re doing a full fledged F&B immersion, but we’ve been doing e commerce and live commerce for a few times.

And you will see that people who actually go in there and have in depth discussions with. The stakeholders, I mean, the people who share experience, also business collaboration, sort of explorations with people who try to expand outside China. So after a few days, your perspective about, I mean, how the Chinese operators operate will be different and that will help you better prepare yourselves, I mean, whether to work with them or whether to compete against them.

But what you can’t do is probably just to ignore them. Yeah. 

Sabrina: So I will link more information down in the show notes below. If you guys are interested, you can check it out. So I think that’s all for today’s episode. Thank you guys for tuning into another episode of the Impuslo podcast. We hope that you guys enjoyed today’s episode, and if you did, do like and share our podcast with your friends.

And of course, do subscribe to our YouTube, Spotify, and Apple podcast as well, because we have two very exciting podcasts coming out next week and the week after. So do stay tuned for [00:25:00] that and subscribe so that you’ll be notified. Bye bye. 

Jianggan: Thank you, byebye.