Starbucks Has Too Many Baristas in the Boardroom

Starbucks’ shares have fallen nearly a fifth this year due to a slump in sales at home and abroad. This turmoil has prompted activist investors like Elliott Investment Management to seek boardroom fixes. Elliott took a position in Starbucks in July and is now in discussions with the company to potentially add fund partner Jesse Cohn as a director, among other governance tweaks. Starboard Value has also taken a stake in Starbucks, though has not yet made any demands.

Chairman Laxman Narasimhan, installed in March 2023, faces challenges from activist investors, including former three-time boss Howard Schultz who opposes a settlement and has taken public potshots at current leadership. A long-running back-and-forth with disgruntled unionized employees reached a careful detente earlier this year.

Maintaining peace between these loud voices is crucial for Elliott and Narasimhan to coordinate on fixes to the bigger problem outside the boardroom. Global comparable store sales fell 3% year-over-year in the most recent quarter, with declines in North America and a 14% drop in China. Loyal customers signed up to Starbucks’ rewards program contribute 60% of the top line, while the remaining, more fickle java drinkers are where the problem lies.

Serving hurried to-go orders as well as in-store patrons is a huge challenge, with complex algorithms determining staffing coming in for criticism. As wait times increase and the cost of coffee beans rises, Starbucks’ operating profit margin is slipping.

Narasimhan seems willing to undergo big changes, including partnerships in China and spending $600 million over three years to digitize stores. Elliott is open to keeping him in place, but the challenge will be to keep any fixes on-track.

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