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Howard Schultz tells Starbucks to fix its stores and mobile app to reverse 'fall from grace'

Grace Dean   

Howard Schultz tells Starbucks to fix its stores and mobile app to reverse 'fall from grace'
  • Former Starbucks CEO Howard Schultz has some thoughts on the company's poor quarterly sales.
  • He said the chain needs to fix its app and focus on the customer experience.

Howard Schultz says Starbucks needs to fix its stores and mobile app to reverse its "fall from grace."

The longtime former CEO wrote in a LinkedIn post on Sunday that the coffee chain should focus on improving its customer experience. This comes after Starbucks posted disappointing quarterly results last week.

"The company's fix needs to begin at home: US operations are the primary reason for the company's fall from grace," Schultz wrote. "The stores require a maniacal focus on the customer experience, through the eyes of a merchant. The answer does not lie in data, but in the stores."

Schultz had multiple stints leading Starbucks, where he was CEO for more than two decades.

Though he wasn't a founder — he bought the company from its previous ownersSchultz shaped the company's growth and turned it into a global giant.

He most recently returned as interim CEO for nearly a year after Kevin Johnson retired in April 2022.

"Senior leaders — including board members — need to spend more time with those who wear the green apron," Schultz wrote on LinkedIn in reference to Starbucks' baristas. He added that the chain needs to "overhaul" its strategy and reinforce its "premium position."

"Through it all, focus on being experiential, not transactional," Schultz wrote. Starbucks has long positioned itself as a "third place" where people can spend time outside their home or workplace, although this model is increasingly under threat as the chain embraces drive-thru and delivery sales.

Schultz said that one of leadership's first actions should be to "reinvent" its mobile app to make it an "uplifting experience" once again, without elaborating further. App orders made up 31% of all US transactions last quarter.

CEO Laxman Narasimhan told investors last week that a "mid-teens percent" of potential mobile orders weren't being completed, with customers putting items into their carts but then not finalizing orders. Baristas have complained that the app can leave stores inundated with too many orders and that customers have used it to order drinks with excessive modifications.

Recovery 'certain'

Starbucks posted a 1.8% fall in quarterly net revenues to $8.56 billion, with fewer visits from what Narasimhan described as "occasional" customers.

In North America, comparable sales fell 3%, driven by a 7% drop in the number of transactions. That's where almost half of Starbucks' stores are located, and the region accounts for almost three-quarters of its revenues.

The decline was even worse in China, Starbucks' second-biggest market behind the US, where comparable sales plunged 11%. The number of orders was down 4%, with an 8% decline in ticket size. Total revenues in China fell 8% to $705.8 million.

Sharon Zackfia, an analyst with William Blair, said in a note to clients that the chain had posted a "stunning across-the-board miss on all key metrics."

The stock is down 22% this year, and by almost a third over the past 12 months, leaving Starbucks worth about $82 billion.

It's not the first time Schultz has offered some advice to management. Earlier this year he said Starbucks should go on a soul-searching journey and reinvent itself in a two-page letter posted on LinkedIn.

However, the chairman emeritus hasn't lost faith in the business.

"Starbucks will recover — of that, I am certain," Schultz wrote on Sunday. "I am confident the China business will return to health and become the company's largest market. The brand is incredibly resilient, but it's clearly not business as usual."

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