As Brian Niccol assumes the role of CEO at Starbucks, he will need to address six key challenges.

• Former Chipotle CEO Brian Niccol is now officially chief executive of Starbucks.
• He has been assigned the responsibility of revitalizing the coffee corporation, which has experienced a decline in same-store sales during the past two quarters.
• In order to make a comeback, the company must address its operational issues, establish its brand identity, and determine the future of its China operations.

On Monday, Brian Niccol assumes the role of CEO at Starbucks, as the company grapples with declining sales and a falling stock price.

In August, Starbucks appointed Niccol to replace Laxman Narasimhan, who had been in the position since March 2023. Prior to Starbucks, Niccol served as CEO of Chipotle, where he turned around the fast-casual chain after a series of foodborne illness outbreaks and led it through the pandemic. Prior to Chipotle, Niccol was CEO of Taco Bell, which he owned.

The day Starbucks appointed Niccol, its shares surged more than 24%, marking the best day ever for the stock. Wall Street analysts praised the move, calling Niccol a "dream hire" and a "hall of fame restaurant CEO."

A Starbucks spokesperson stated that Brian has a deep understanding of brands, operations, and innovation, and is committed to supporting retail teams in serving customers in-store. The company looks forward to the fresh ideas that Brian will bring to their business.

Niccol, with his marketing background, began his career at Procter & Gamble before moving to Yum Brands in various marketing positions. He later became the leader of Taco Bell. His marketing expertise was valuable at Chipotle and will likely be useful at Starbucks.

Niccol is facing a more complex business as he takes over Starbucks, which made $36 billion in revenue in fiscal 2023, compared to Chipotle's $9.9 billion in sales last year. Additionally, more than half of Starbucks cafes are located outside of North America, while the majority of Chipotle restaurants are in the U.S.

Turning around the sprawling Starbucks business won't be easy.

It is anticipated that Niccol will reveal more information about his plans for the chain during the company's fiscal fourth quarter earnings call, which is likely to occur in October.

Here are the six problems that Niccol needs to fix at Starbucks:

The value equation

In recent years, Starbucks has been increasing its prices due to inflation, unlike Outback Steakhouse, which has been facing consumer price sensitivity.

Recent data indicates that Starbucks customers are becoming more price-sensitive and cutting back on their coffee purchases. Executives have acknowledged that they are losing occasional customers who are seeking more affordable options. These consumers can opt to get their caffeine fix at home or from competitors like Dunkin' who offer cheaper drinks.

This summer, Starbucks has been attempting to attract customers through promotions, such as offering half-off any customized drink on Fridays. However, discounts can negatively impact profits, making it challenging for restaurants to strike the right balance.

As CEO, Niccol must determine how to reduce prices or convince consumers that a latte is worth $6.

Bringing back Gen Z

While Starbucks has attributed the rise in cold coffee sales to younger consumers, Gen Z has also been critical of the brand's perceived progressiveness.

Over the years, Starbucks has been known for its commitment to employee welfare and progressive values, including its support for same-sex marriage. However, this image has started to change as the company has taken a more aggressive stance against unionization, with efforts to suppress unionization efforts beginning in 2021.

Younger and vocal baristas led the charge to unionize, sharing their perspectives on social media. The union fight sparked other controversies, including debates over store managers removing Pride decorations and confusion about the company's stance on Israel's offensive in Gaza, which resulted in a boycott.

Niccol and his team must address the identity crisis of Starbucks Workers United, as many younger consumers now have a different perception of the company.

Mobile app frustrations

At many Starbucks locations, it appears that mobile orders have overtaken traditional in-store orders, causing frustration among customers and baristas.

While Chipotle has been proactive in investing in secondary assembly lines for online orders, Starbucks has not made the same investments, leading to operational issues and a subpar customer experience. Although Starbucks has been rolling out new equipment to automate some drink-making tasks, the process has been slow.

While digital orders provide customers with a more convenient way to purchase their drinks, baristas have expressed concerns that they can overwhelm stores, especially during promotions. Additionally, customers are more likely to order complex drinks through the app, which increases profits but also takes longer to prepare. As a result, those who prefer to order in person may have to wait longer as baristas manage both digital and in-person orders.

The shift to mobile ordering has diminished Starbucks' in-store experience, which was once a "third place" between home and work, contributing to the brand's identity crisis.

Sluggish innovation

Despite the popularity of the pumpkin spice latte, recent menu additions haven't generated the same level of excitement.

Despite its attempts to expand into energy drinks and spicy beverages, Starbucks' sales declined in the U.S. during its fiscal third quarter. The chain's lavender line, however, was successful.

At Chipotle, Niccol spearheaded the launch of new menu items, including carne asada and quesadillas, which boosted sales and encouraged customers to pay a premium for their protein choices. This shift from Taco Bell's fast-paced menu changes represented a significant departure for Chipotle, but it ultimately paid off by attracting more customers and increasing revenue.

Niccol will need to spearhead the effort to determine which new menu items will reignite customer enthusiasm at Starbucks.

The China problem

Despite being Starbucks' second-largest market, China is currently the coffee chain's biggest challenge, with same-store sales falling 14% in the latest quarter.

The sluggish consumer environment and the rise of local competitors have hindered Starbucks' recovery from the pandemic in China. For instance, Luckin Coffee, which has recovered from an accounting scandal, has surpassed Starbucks as the largest coffee chain in the country.

In late July, under pressure from activist investors such as Elliott Management, then-CEO Narasimhan stated that Starbucks was considering strategic partnerships in China. This could involve partnering with a technology company or forming a joint venture with a local partner to manage daily operations.

With Narasimhan out and activists pacified, Niccol must decide how to handle the company's China business. Can the chain recover its former market position, or is it time to retreat after 25 years?

The Howard Schultz overhang

For over 25 years, Schultz has been the CEO of Starbucks, the Seattle-based company he transformed into a worldwide coffee empire. Following his most recent stint as interim CEO from 2022 to 2023, he declared he would never hold the position again and stepped down from any official role at the company.

Despite not being officially in the C-suite, Schultz's influence on the coffee chain has persisted for a long time.

Schultz has been vocal about Starbucks' recent struggles, expressing his views first in a public LinkedIn post and then on a three-hour episode of the "Acquired" podcast. Mellody Hobson, who succeeded Schultz as chair of the Starbucks board, kept him informed about discussions to remove Narasimhan, his chosen successor, and to hire the Chipotle CEO in his place. Schultz also holds a 2% stake in Starbucks.

Schultz's influence has been attributed to the company's succession issues, similar to Disney's. Despite his retirement, investors continue to worry about his level of involvement with the company, causing the stock to be pressured.

As CEO and chair, Niccol arrives at Starbucks with six years of experience leading a restaurant company after its founder stepped down. It remains to be seen if that will be enough to surpass Schultz's legacy.