This is the second in a three-part series on the reinvention of Starbucks.
Part 1: Starbucks works to keep pace with its customers.
Today: Laxman Narasimhan takes the helm of a changing Starbucks.
Part 3: After a critical self-assessment, Starbucks pursues a labor course correction.
Laxman Narasimhan hasn’t been at Starbucks for long, but his office is already steeped in the company’s culture.
At first glance, it is a nondescript space. Neat, with little desk clutter. But along one wall, a six-foot shelf displays a collection of hundreds of cups, coffees, mugs and other Starbucks trinkets.
Hanging along a trio of black knobs next to the bookshelf is about a half dozen aprons, all but one of them green. The brown one has a black nametag, “Laks,” which is what everyone calls him.
“Everything in here is from Starbucks,” he said. That includes the artwork on the wall, the chairs and even the desk, which is a communal table from a café. Along the back wall, he’s displayed 44 Polaroid photos of himself with Starbucks employees, which the chain calls “partners,” in a variety of different environments from around the world.
Many of those Polaroids were taken during his first six months with the company, which he spent in a unique immersion into Starbucks’ business and culture. “I learned how to make coffee,” he said in an interview. “I frankly failed at making coffee. There were a lot of things that I learned in those first few months.”
Photos of Laxman Narasimhan with Starbucks partners from around the world in the CEO's office. | Photo by Jonathan Maze
Just more than a year with Starbucks, Laks is now the unquestioned leader of that culture. He gets emotional when speaking about the partners, at one point noting. He routinely stops into Starbucks locations and puts on one of his aprons, even doing so in the hospital while visiting his 89-year-old mother. And he recently received his coveted “black apron,” which shows him to be a coffee master. Many on the executive team earned it with him.
He took the position following one of the most unique, and public, periods of corporate self-examination in industry history. While it may not have been evident to outsiders that something was bugging Starbucks, it was apparently bad enough to lure Howard Schultz, Starbucks’ two-time CEO, to step in again for a third time while searching for a permanent replacement.
Schultz has again stepped into the background. And Laks is now the one in charge at a crucial time in the coffee giant’s history.
The challenges
Narasimhan is a native of Pune, a city of about 6 million in Southwest India. He has a degree in mechanical engineering, coming to the U.S. to get a pair of master’s degrees from the University of Pennsylvania, one an MBA, the other in German and International Studies.
He ventured to the U.S. “with two suitcases, $7,700 and, because I’m Asian, a pressure cooker,” he told the Fortune podcast Leadership Next in October. Narasimhan knows six languages and he has lived or worked on most of the world’s continents.
The 56-year-old spent the better part of two decades working for the management factory McKinsey & Co., advising companies around the world, including fast-food restaurants and retailers. He left that company for PepsiCo in 2012, where he worked for seven years, ultimately becoming global chief commercial officer.
He was then tabbed to helm the British health and hygiene products company Reckitt, which owns brands like Lysol and Clearasil. He spent three years there, just enough time to help revitalize the company, before Starbucks came calling with a tempting idea to return to the U.S.
Starbucks is the world’s second-largest restaurant chain, both by unit count and by total system sales, behind only McDonald’s. It is one of the most-innovative companies in the world. But the chain was struggling under some real challenges.
Almost everything on this shelf in Laxman Narasimhan's office is from a Starbucks. His aprons are to the left. | Photo by Jonathan Maze
The company had strong sales and traffic coming out of the pandemic, to the point that Schultz in the summer of 2022 told analysts that its stores were too busy, which is akin to revealing in a job interview that your biggest flaw is that you work too hard.
But workforce issues, stemming from the pandemic’s onset, plagued Starbucks. The coffee chain closed all but its drive-thrus for a time, and kept paying workers. Employees who did work were confronted with challenges associated with working during the pandemic, risking illness while dealing with customers angry over mask requirements or other issues.
It also fed into other problems. “Imagine you’re a store manager and you get a call at 5 a.m.,” he said. “There are three callouts. One employee has COVID. One has a mother who is ill. One person thinks they were exposed and can’t come in until they take a test.” Stores were forced to be overstaffed, and the result, he said, was too many employees, too few hours per worker, and too many partners who couldn’t get the hours they wanted.
The post-pandemic period wasn’t much better. Labor shortages gave people options for other jobs, prompting the company to continue overhiring. Supply chain shortages also dogged the chain for months, leaving workers the difficult task of telling customers they didn’t have enough items such as, oh, disposable cups.
“COVID was really very hard on Starbucks,” Narasimhan said.
The pandemic exposed other issues, too. Starbucks over the years had shifted from a brand that sold hot beverages to commuters to one that sold customizable cold beverages to young adults and teenagers. A brand known for being a “third place,” where customers sat with a coffee to talk with friends in the afternoon or get some work done, had become primarily a place where they ordered on their mobile phones or went through the drive-thru.
All this was hard on the partners. There are some 338 billion possible combinations of beverages, according to the publication Bloomberg. The partners had to make these beverages quickly, because Starbucks’ stores were busy and because customers will only wait so long for their drinks.
And yet they still needed to maintain a level of service, or a “human connection,” as Narasimhan likes to say. “The feeling of being cared for is three times the weight of any other factor,” CMO Brady Brewer said. Staff not only need to be fast, but they also need to come across as caring for that person who ordered a complex cold beverage. That’s not an easy needle to thread.
The combination of the pandemic, labor and supply chain shortages and the evolving nature of the job revealed cracks in the foundation of a company that has long prided itself on its culture. Turnover increased to 85%. While many restaurants would love that kind of turnover, for the coffee chain it was abnormally high. It’s typically 60% to 65%.
And then there is the unionization campaign, which has spread to more than 350 locations. That is only a fraction of Starbucks locations—the chain opened twice that last year, for instance—but it remains the most successful effort to unionize restaurant workers in history.
“At the heart of it,” Narasimhan said, “the business changed.”
Laxman Narasimhan. | Photo courtesy of Starbucks
The immersion
Narasimhan was lured to Starbucks in part because of the unique method in which the company opted to employ its new CEO.
Schultz did not have an official role with the company in early 2022. But he stepped in that March after his handpicked successor, Kevin Johnson, opted to retire. And Starbucks, despite otherwise strong sales and transaction count, went on a complete overhaul more reminiscent of a company facing far greater financial difficulties.
The chain announced plans to invest $1 billion into its partners and its stores, which it called a “Reinvention.” It also overhauled much of the C-suite, with some executives leaving who might have been considered natural CEOs at any other time. And Schultz, who insisted that he had no plans to be a permanent CEO, looked for his next successor.
Narasimhan was kept abreast of the planned Reinvention. And he and company executives formed a plan that would immerse him in company culture. “Howard and I had a large conversation and we decided that I would start in the store,” he said. “Experience the partner experience.”
One element of the unionization campaign was the notion that Starbucks executives were out of touch with the baristas who staffed the chain’s stores. Narasimhan’s own background, however, didn’t exactly scream someone who knows the everyday problems of coffee shop workers. He is a McKinsey-trained executive who has moved from one multinational corporation to the next.
“Showing vulnerability is an important way of how you connect with people.” -Laxman Narasimhan.
The solution was to work for six months inside the shop’s stores, effectively cleansing Narasimhan of that history.
Employees at first were in awe, working alongside the Starbucks CEO. That awe wore off quickly when Narasimhan was too slow making customers’ complex drinks. “After two hours, they’d step in and say, ‘You can’t do it that way,’” Narasimhan said.
That’s a crucial interaction. “Showing vulnerability is an important way of how you connect with people,” he said. “It felt like family.”
By working in the stores, Narasimhan was able to understand some of the challenges partners face in their demanding roles. “They’re hard,” Brooke O’Berry, SVP of U.S. retail operations, said. “They’re hard jobs.”
But it also immersed the CEO in Starbucks’ culture. The best restaurant companies protect their culture religiously. It’s why some chains will only sell franchises to people who’ve worked for a year inside a store or hire managers who echo the company’s values.
It clearly matters to Starbucks, which has spent a lot of money and attention in a bid to keep workers around. After its IPO, it gave employees stock, vesting after two years, which some workers used to help buy a house. Some of its benefits are unique not just for restaurants but for employers as a whole, such as intrauterine insemination for those facing fertility struggles.
A huge reason Schultz returned to the company in March 2022 was his concern that Starbucks was losing some of what made its culture great.
It’s one thing for a restaurant executive to spend a few months early in their tenure inside stores. But Narasimhan wants them there more often: Starbucks now requires its top executives to spend at least four hours in a store every month. Many executives have stores they regularly work with.
Narasimhan himself puts on his apron to work inside a store whenever he gets the chance. That included one time in a hospital when he was visiting his mother.
“There’s no substitute for getting behind the counter,” said Jon Liechty, SVP of U.S. retail operations.
Inside headquarters, the new CEO is known for his personal nature, and for poking his head into the background of various staff Zoom meetings.
Schultz stepped down as interim CEO in March of last year, 12 months after he returned. Shortly thereafter, Schultz left the board, too, after initially indicating he’d stick around. But he’s not far, and Narasimhan talks with him regularly. “We’re benefiting by having him around,” said AJ Jones, Starbucks' chief communications officer.
Taking charge
Laks now helms one of the world’s most recognizable brands at one of the most important periods in its history. Starbucks is an omnipresent provider of coffee around the world, in its stores, on airplanes, in hospitals and on college campuses. Perhaps some 3% of the world’s population, hundreds of millions of people, have used the company’s app some time in the past six months.
It's also a company that has undergone a complete self-reflection over the past 21 months, despite what otherwise appeared to be strong performance coming out of the pandemic.
“There is a constant need to stay ahead and reinvent yourself.”
That self-reflection didn’t end with Narasimhan’s arrival as CEO, either. Laks has updated the Reinvention plan with what he calls a “Triple Shot Reinvention,” which includes additional technology, increased food options and better sales, along with some $3 billion in cost savings through efficiencies. Much of those savings will come through the supply chain.
“We are just innovating,” he said. “There is a constant need to stay ahead and reinvent yourself.”
The unionization campaign has also occupied a lot of company time, leading to complaints, lawsuits, protests and a lot of media attention. Federal regulators have filed 100 complaints against the company over its treatment of the union, including one complaint that Starbucks closed 23 stores just to keep the union down. The National Labor Relations Board is now arguing that the company is refusing to collectively bargain with the union.
The company denies those charges. “We’re not union-busting,” Narasimhan said.
Meanwhile, Starbucks has been engulfed in a public back-and-forth over the Israel-Palestine war, one that has led to calls on both sides for a boycott of its restaurants and numerous incidents of vandalism at the company’s stores. There’s even a website now, called “Nahbucks,” enabling customers to avoid the chain’s locations, though that's mostly to push people to independent shops.
It remains to be seen whether any of this controversy will affect Starbucks’ sales. For most of its history, outside of a couple of years around the Great Recession, the company has avoided the types of major sales slumps that dog most big chains. Starbucks has, dating back years, been among the industry’s most consistent sales performers.
But in November, an analyst had cited some credit card data suggesting a sales slide. Media speculation quickly suggested that the Israel-Palestine boycotts of Starbucks, the union protests, or both, were having their intended effect. Starbucks stock slid 10%, more than wiping out its gains for the year at a time when other restaurant stocks were thriving.
It was enough to prompt Narasimhan to decry violence in his holiday letter to the chain’s partners.
“Our stance is clear,” he said. “We stand for humanity.”
Narasimhan has spent the past 15 months fully immersed in Starbucks culture, earning that apron as he’s taken it over. He has become a big believer in the company and its role in society and suggested that it doesn’t get the credit for being a good citizen that it deserves. He cited Starbucks’ College Achievement Plan, which has helped 12,000 of its partners receive a college degree.
“At a base level, the world is deciding whether you’re a taker or a giver,” he said. “Starbucks is a giving company.”
It remains to be seen what kind of impact Laks will have on Starbucks over time. But one thing is clear: He is fully immersed in the company and its culture. Right down to his office décor.
Tomorrow: After a critical self-assessment, Starbucks pursues a labor course correction.