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- [00:00]
Narrator
Wondery plus subscribers can binge all episodes.
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David Brown
Of Business War's Starbucks Bitter Brew early.
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Narrator
And ad free right now. Join Wondery plus in the Wondery app or on Apple Podcasts.
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David Brown
It's November 16, 2023 in Chicago. We are the unions. We are the union. On bustling North Broadway, baristas on strike walk a picket line in front of a Starbucks store. Workers at 150 other stores have walked off the job too. This is the biggest strike in Starbucks history, and it's being held on a big day for the coffee chain. Today is Red Cup Day, an annual event where Starbucks gives customers a free reusable red cup with the purchase of a holiday themed drink. But here in Chicago and around the country, Starbucks workers are asking customers to forego their free red cups and instead join them in what they're calling the Red Cup Rebellion. A reporter with the Associated Press asks a Starbucks worker why they're striking on such a busy promotional day.
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Starbucks Worker
So we just have basically an infinite amount of drinks and we're understaffed and we're underpaid and we're sick of it.
- [01:19]
David Brown
It's been almost two years to the day since workers formed the first ever union at Starbucks back in 2021. Soon after that, Starbucks legendary leader Howard Schultz came out of retirement to serve his third stint as Starbucks CEO and try to stop the union drive in its tracks. Shultz barnstormed the country with that effort. He even apologized to employees and said Starbucks had failed them. He promised the company would do better. But the unionization drive continued through Shultz's year long tenure. Schultz left in the spring of 2023 for what he promised would be the final time and brought in Laxman Nerisimon as the new CEO. A few months into his tenure, Narasimhon had yet to make headway in fixing Starbucks labor problems. And today on Red Cup Day, striking Starbucks workers from Seattle to San Francisco to New York are feeling broken hearted under the new leadership. As this Starbucks worker in Chicago explains.
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Starbucks Worker
I've actually been a barista for 16 years, since I turned 18. I started with this company. I actually love this company and I love the ideals that this company has stood for my whole life. However, they have not stayed true to those ideals. And that is one of the biggest reasons why I personally unionized is because they have promised the world to us and they have not delivered.
- [02:41]
David Brown
Soon after, Starbucks and CEO Laxman Neris Simmons will make another promise to start a collective bargaining process. Company leaders want to finally broker a peace between the chain's increasingly unionized workforce and Starbucks leadership. But a big fight with Starbucks leadership is coming anyway. That contest will pit Nera Simmons against Starbucks most iconic leader Howard Schultz, which will beg this question, is Schulz's lasting shadow over Starbucks clouding the company's future?
- [03:20]
Narrator
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- [04:34]
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- [04:53]
David Brown
Can I get you a refill?
- [04:54]
American Express Representative
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- [05:07]
David Brown
From Wondery I'm David Brown and this is Business Wars. You know that feeling you get when you haven't had quite enough coffee? You're not exactly falling asleep, but you're not awake enough either. Well, that's where Starbucks finds itself at the end of 2023. The company's not quite right. Not sharp enough. Starbucks may sell millions of cups of coffee a day, but right now it's the one needing a jolt. In the last episode, it looked like the man who built Starbucks from a little Seattle coffee roaster into the world's leading coffee house, might be the person to provide that jolt. Howard Schultz returned to his company to serve as CEO for the third time. And he promised that he could return Starbucks to what Schultz called a third place. A public gathering spot where all kinds of people politely mingled. And that's what Starbucks was in its early days. But as of Schulz's return, the company was not so much a third place as it was in a bad place. It had labor troubles and its stores had lost their once welcoming appeal. Before those problems were fixed, Schultz handed over the CEO job to Laxman Nerisiman, who Schulz called his number one draft pick for the position. But Schultz has kept a close eye on Narasimhon ever since. And now Schultz, Starbucks, all time best player, might be getting too close for his number one draft pick's comfort. Starbucks has powerful competitors and an activist investor breathing down its neck, too. And that will lead to yet another executive shakeup. One in which a new leader brews up a plan to take Starbucks back to its past. This is episode two, Back in Black. It's December 2023 in Helsinki, Finland. It's sleeting. A group of protesters stands out in the cold, refusing to come inside to a nearby Starbucks store where warm beverages are being poured by baristas. The protesters are boycotting Starbucks because of the war in Gaza. You make drinks for genocide. You make drinks for genocide. It's been almost two months since Hamas invaded Israel on October 7, 2023, and Israel responded with an aerial bombardment of Gaza. When that happened, the union representing Starbucks workers posted a pro Palestine message on social media. Starbucks responded by suing the union for infringing on the Starbucks copyright. That's convinced some customers or former customers like those boycotting in Finland, that Starbucks has taken Israel's side in the fight. But in fact, Starbucks hasn't taken any official stance on the war. Still, the boycotts are starting to hurt business, especially in the Middle East. And that comes at an especially bad time, because right now, Starbucks also has trouble brewing in its second biggest market, China. During the pandemic, Starbucks business cratered there, falling 17% from 2019 to 2020. Sales have perked up since then. But in late 2023, a Chinese chain called Luckin Coffee overtook Starbucks as the biggest selling coffee there. And now, amid all that trouble overseas, back in the States, the biggest restaurant chain in the world is about to shake up the coffee scene even more. It's December 2023 in suburban Chicago, in the darkness before dawn, a line of cars wraps around the block of a brand new McDonald's concept store. There are no Big Macs here, no quarter pounders, no McChickens, not even a dining room. This store's drive thru only. From four different drive thru lanes, drivers can order lattes, energy drinks, slushies and bubble tea. Plus breakfast sandwiches and ice cream and a handful of snacks. McDonald's calls this concept Cosmics. It's been designed to deliver customers orders with the speed of a rocket. Get it? But on the first weekend in business, at the first Cosmics location, it'll take a while for customers to even place their orders. Because today the demand is otherworldly. Outside of the store, news crews film the traffic police in yellow vests wave their arms to direct the snarled line of cars. After waiting in line for an hour and eight minutes, one excited vlogger films himself placing his first cosmcs order.
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Customer
Good morning.
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David Brown
Welcome to cosmcs.
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Customer
What can I get started for you today?
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David Brown
Can I get the churro frappe, Pretzel bites, Twisty cone? I don't know what it's called. The one with donuts and stuff in the middle.
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Customer
Oh, the McPops.
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David Brown
The McPops. Anything else? That is it. If you're wondering, no. At cosmcs, they don't ask, do you want fries with that? Because cosmcs doesn't serve fries. What they are serving though, is a challenge to Starbucks. Cosmcs has been designed to hit Starbucks right in its weak spots. Hey, remember back in episode one where we talked about how Starbucks, after Howard Schultz acquired the company, introduced Americans to Italian style coffee drinks? Those were the days when we all learned the words venti and grande well. As Starbucks expanded, it created enough demand for other coffee chains to step in. Pete's and Tim Hortons grew alongside Starbucks and a lot of smaller local roasters and shops open too. But as time has gone on, well, Americans taste for Americanos has changed. The kind of hot, dark, caffeine packed drinks that Schulz pioneered are on the decline. Lighter and softer and definitely sweeter drinks are on the rise. Between 2016 and 2023, consumption of cold coffee concoctions more than doubled. In the US that trend was driven by younger consumers. If you're between 18 and 39, you probably think black coffee is gross. You're most likely a cold coffee consumer who prefers some kind of sweetener to mask coffee's bitter taste. Older than that, well, you probably drink it hot. That means the generations that best. Remember Howard Schultz's booming coffee chain in the 1990s with those comfy chairs and couches and that dark roast scent? That's not the generation that's buying most of what's sold at America's coffee shops. Think about it this way. If you take your coffee hot and unsweetened, well, you can make it at home in minutes using a pod machine or maybe one of those chunky Italian mocha pods. If you like it cold and caramelly, you're probably getting it at a coffee shop rather than going through a typical 20 hour long cold brew process. Starbucks offers plenty of those kinds of chill drinks, of course, but it sometimes struggles to do so. Ever since the pandemic, Starbucks customers have complained about increasingly long wait times for iced coffee concoctions and other drinks. Dunkin, on the other hand, put the pedal to the metal on its speed of service. Even though Dunkin is smaller than Starbucks, it has around 64% more drive thru locations than Starbucks does. To fix that, Starbucks doesn't just want to add more drive thrus, it wants to boost its speed overall. The company has just begun what it calls its triple shot reinvention with two pumps. That plan will fund a revamp of Starbucks stores, which had been designed back in Howard Schultz's days to primarily make hot coffee drinks. With more than 70% of Starbucks drinks orders now consisting of cold beverages, well, Starbucks is remaking its equipment retraining baristas in hopes of making those beverages faster. But McDonald's doesn't have to redesign anything with Cosmcs. It built the concept from the ground up to offer both speedy service and cold drinks like the Sour Cherry Energy Burst and the Melon Herb Chiller and the Sea Salted Caramelactic Shaken Espresso. For now, the suburban Chicago location of Cosmics is the only one that's opened. But the megachain has plans to open 10 more cosmics this year in suburbs and cities across Texas, and it hopes more will follow. Just as McDonald's hopes to put a chill on Starbucks revenues, other big chains are also trying to do the same, albeit in different ways. Massachusetts based Dunkin and Minnesota based Caribou Coffee tout lower prices. And Oregon based Dutch Bros. Which says it's on a mission to love. Everyone has Broistas who offer ultra friendly. Some even think of it as as far flirty service that goes a step above Starbucks. As 2024 begins, those challengers at home and the troubles overseas are about to take a toll. That'll be paid Right after the opening bell rings on Wall street. It's early May 2024. On Wall street, minutes before the stock markets open for the day, a distressed Jim Cramer predicts a free fall for Starbucks, his stock which has already sunk in pre market trading.
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Jim Cramer
Gentleman, when we look at the biggest loser today, it's going to be Starbucks. It's among the worst performers in the S&P 500. Joining us now exclusively is Starbucks CEO Luxembourg Narasimh. Mr. Narasimh, it's good to have you on the show and I appreciate that you're coming on despite the fact that the quarter was extremely weak.
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David Brown
Jim, it was a very tough quarter. Thank you for having me. That's an understatement. It was in fact Starbucks worst quarter since the pandemic. And some on Wall street think it was the company's worst quarter in its entire 53 year history. Starbucks reports that its revenue slumped nearly 2% and net income fell 15%. In China, sales are down 11%. Worse customer traffic to Starbucks is stores slumped by 6% and same store sales fell 4%. Now maybe 4% doesn't sound like all that much. But Starbucks rarely reports same store declines. And with 6% fewer customers coming through its doors, Wall street gets apoplectic about the news. As the trading day begins, Starbucks stock cascades. It continues sliding for the next couple of days, losing 17% of its value to mark a two year low. The company line from Narasimhon is that inflation, which spiked during the pandemic and has not yet been tamed, may have led some occasional customers to forgo visits. That makes some sense as Starbucks releases its terrible earnings report. A hot cup of cappuccino costs five and a half dollars. And if you want a cold caramel ribbon crunch creme frappuccino, well, you better dig deep enough into your pocket to pony up almost seven and a half greenbacks. But Nerisimon is underplaying the bigger story and he catches heat for doing so in the business press. Think about it like this. Duncan and Pete's and Tim Hortons have had to deal with a higher cost of coffee beans too. The fact that fewer people are darkening Starbucks door to get a cup of that dark roast suggests that something else is going on here. Starbucks value proposition has long been about pairing great customer service with great drinks, even if those drinks cost more than your average diner's cup of joe. But for much of Nera Simmons tenure, customers have griped about messed up orders and a clunky Starbucks ordering app and long Wait times at understaffed Starbucks stores. Days after the company releases its concerning earnings, another voice joins the chorus of complainers. It's Starbucks visionary leader Howard Schultz. He posts a screed to LinkedIn. In it, Schultz says that Starbucks has had a fall from grace. He chastises senior management for focusing too much on data and not enough on the Starbucks workers who wear the company's iconic green aprons. Let's rewind here. The most senior manager on the Starbucks payroll is Laxman Nerisimon. When Schultz announced that Neris Simmon would succeed him as Starbucks Boss back in 2022, remember, he called Neris Simmon his number one draft pick. But there were signs of trouble between Schultz and Neris Simmons. Just months later, in early 2023, Schultz brought Neris Simmons an idea. Schultz had recently watched a New York Giants practice, and he knows that the Giants defense was on one part of the practice field, offense on the other, and special teams in yet another. Schultz suggested that Starbucks consider compartmentalizing its store teams, too. Schultz figured that by having workers specialize in just one area, they might be able to break the service logjams the company had been experiencing. Nera Simmons flatly dismissed Schultz's suggestion. He told Schultz that the New York Giants are a football team. Starbucks is a company very different things. Schultz politely laughed off the rejection. But now, in May 2024, his terse LinkedIn post is anything but polite. Soon after, his post causes its own buzz in the business press. Schultz appears on a three hour long podcast. And while he's there, he doubles down on his criticism of Starbucks. The company has not executed the way that I think it should have. I go into the stores, you know, like I, I know the company and I think we're, we're not, we're not our best right now. As Starbucks sputters, the scuttlebutt on Wall street is that Nera Simmons may no longer be the right player for Starbucks CEO position. But if Starbucks number one draft pick can't lead the team to success, then who can? To answer that question, Starbucks board of directors is about to throw a Hail Mary.
- [19:56]
Narrator
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- [21:32]
David Brown
Foreign It's July 2024 in Seattle at Starbucks's headquarters, Laxman Nera Simmon pulls on a green and white varsity jacket. The Starbucks logo is on one sleeve. Not long ago, Nera Simmon told Howard Schultz that Starbucks is a business and not a football team. But today he's dressed like a jock and taking the stage for a football style pep rally with headquarters employees. The company's troubled, but the company has had one big win lately. A few weeks ago, the Supreme Court ruled that the Federal National Labor Relations Board had overextended its authority months earlier by ordering Starbucks to rehire several union activists the company had fired. That could have a ripple effect on other labor cases at Starbucks. And yet today, Nara Simmons pep rally is being held after yet another tough earnings report. Net income falls again, foot traffic into the stores declines again, and same store sales slide again. On stage, Narasimmon waves to the crowd and smiles. He says that despite the bad numbers, he sees signs of attention turnaround. But what Nara Simmon doesn't see is that Starbucks's board of directors is plotting behind his back to take him down. It's August 2024 in Provost, France. Melody Hobson swings open the casement windows inside her European country estate. The 55 year old Hobson, the chair of Starbucks Board of Directors, takes a deep breath. The scent of nearby flowering plants fills the room. But that does little to calm Hobson's nerves. Hobson, who owns this estate and vineyard along with her husband, filmmaker George Lucas, is waiting on a very important call. This is a call that could change Starbucks future. For weeks, Starbucks board of directors has been secretly contemplating making a change at the very top of the plan organization. They've told almost no one outside the boardroom, including current Starbucks CEO Laxman Nerisimon. Now they're ready to move forward with a candidate. His name is Brian Nicol, a 50 year old executive who swooped in to rescue Chipotle after an E. Coli outbreak in 2015 that nearly cratered the company. Starbucks board believes Nicol, who also ran Taco Bell, is the best person in the country to save Starbucks. What they don't know is whether Nicol will take the job. Hobson has asked one of her most trusted associates to ask Nicol if he's interested. Her associate calls with good news. Nicol wants to talk about the job and he wants to talk to Hobson directly. Hobson packs a bag and heads for Southern California, where Nicol lives in Chipotle's headquarters. 25 hours after she received the call about Nicol, Hobson is in Newport Beach, California to meet with Niccol face to face. Nicol is a towering figure, figuratively and literally. The business press has taken care of the figurative part by dubbing Nicol a fast food guru and saying he wears a messianic halo. That's because he led a remarkable turnaround at Chipotle by effectively communicating Chipotle's renewed commitment to the food safety and making major operational changes, including redesigning stores and revamping the chain's mobile ordering app. As of his meeting with Hobson, Chipotle had twice the revenue it had in 2016 and its stock price was up almost 800%. He's also literally towering, at least over Hobson. At 6 foot 3, the square jawed nickel stands more than a foot taller than Hobson does. The two executives flash bright smiles at each other as they meet. But Hobson has reason not to be too cheerful. Hobson, along with the rest of Starbucks board, is under intense outside pressure. An activist investor hedge fund called Elliott Investment Management has taken a big stake in the company. Elliott is considered one of the most feared investors in the world. Elliott has forced out board members and executives at Southwest Airlines, Barnes and Noble and others. It also once wrangled 2.4 billion out of the nation of Argentina after a standoff in which Elliott tried to seize an Argentine naval vessel. Hobson might be able to stop a similar standoff with Elliott if she convinces Nicol to use his messianic halo to become Starbucks savior. But to land Nickel, Hobson has to agree to some sky high requests. Nickel wants Starbucks to replace $90 million in stock awards he'll lose at Chipotle, plus offer a multi million dollar bonus combined with other incentives that could make him a 113 million dollar man at a company where some baristas make about $16 an hour. And Nicol wants something else. He wants to continue living in Newport beach, where he takes his youngest daughter to school each day. He asks Hobson to let him use one of Starbucks private jets to commute to the company's Seattle offices 1200 miles away. Hobson agrees to all of it, plus one more thing. She'll step down as chairman and Niccol can step in. Nicoll insists Hobson won't regret all of that. He tells Hobson that he knows exactly what to do at Starbucks and that its current troubles are nothing more than a speed bump in the company's history. Days later, on a Sunday, the deal is finalized and Laxman Nera Simmons gets the axe. Brian Niccol is in. But is he really worth 100 million bucks? Depends on who you ask, but at least some people think he might actually be worth 20 billion. It's August 2024. On Wall Street, Starbucks has just announced Brian Nichols higher the stock jumps, creating more than $20 billion in market value in one day. But the news isn't all good. Starbucks is now on its fourth CEO in just three years. And some think Howard Schultz should bear the blame for not getting out of Nerissimmons. Way the thinking goes that Nara Simmons never had a shot to run Starbucks his way. CNBC's Jim Cramer, though, sees things differently. As he explains on his Mad Money.
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Jim Cramer
Show behind the scenes now, many are blaming fans, founder and former CEO Howard Schultz for lording over his successor. I think Howard was more appalled by the lack of contrition than he was by the horrendous execution, which he did not like. But if you're blaming Schultz for firing Luxman, maybe you should thank him because he just created $20 billion in value when we learned that they post a brilliant CEO from Chipotle.
- [28:56]
David Brown
But stock price isn't everything. Starbucks is still a company in crisis. A union movement continues to gain momentum. It's falling farther behind in China. And in the US Customers have more options than ever for places to grab a cup of Joe Nickel quickly formulates a plan to address all of that. And when he unveils it, it won't involve turning Starbucks into a fast food chain like Chipotle or a rocket fast operation like Cosmic. Instead, he wants Starbucks to be what it used to be. Howard Schultz's third place. The problem is right now, that third place is a first rate mess. It's October 2024 in Seattle. At the innovation lab inside Starbucks headquarters, three green apron baristas whip up drinks behind a long white counter. Starbucks new CEO Brian Nichol steps in front of the counter and turns his back to the barista's frenzied work. In front of Nicol, a camera crew from Starbucks marketing team zooms a lens in on the new boss. He buttons his checkered sport coat. A teleprompter flickers on. Nicol has been on the job for just over a month. He's already written a letter to employees outlining his vision for freshening up the coffee company's business. He's dubbed his plan back to Starbucks. But today, Starbucks has reported another set of disappointing financial results. So Nickel is going live to employees with a message. After meditating on the future of Starbucks, this fast food guru has decided that the best way forward is for Starbucks to return to its past and to Howard Schultz's 1990s vision of the third place. Schultz, who is Starbucks biggest individual shareholder, isn't mentioned in Niccol's script, but his presence still looms large. The camera crew makes final adjustments and signals to Nicol that they're ready to roll. Okay, Brian, here we go. In three, two.
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Customer
I think, as you know, last month I made a commitment that we would get back to Starbucks. That means focusing on what has always set Starbucks apart from a welcoming coffee house where people gather and where we serve the finest coffee handcrafted by our skilled baristas. It's our enduring identity and it's why millions of customers around the world visit Starbucks every single day. People love Starbucks. But I've heard from some customers that we've drifted from our core, that we've made it harder to be a customer than it should be and that we've stopped communicating with them. As a result, some are visiting less often. And I think today's results tell that same story.
- [31:43]
David Brown
Nickel pauses and takes a deep breath as his address goes on. He pledges to employees that they come first, that everything Starbucks does starts and ends with them. And he pledges to give baristas and others the time and tools they need to provide exceptional service. That's a message some, including those working in the nearly 500 unionized stores, are hoping to hear. Nicol points a finger at the camera and hammers home his message.
- [32:12]
Customer
This is the moment of truth. This commitment will drive every decision we make. To succeed, we need to address staffing in our stores, remove bottlenecks and simplify things for our baristas. We need to refine mobile order and pay so it doesn't overwhelm the cafe experience. We know how to make these improvements and when we do, we know customers will be visit more often. We must re establish ourselves as the community coffee house.
- [32:38]
David Brown
In the days that follow, Nicol begins re establishing the brand by going on a media blitz. In multiple interviews, the CEO outlines the core of his strategy. He promises to make baristas lives easier by taking many drinks off of Starbucks menu. He also says Starbucks will no longer upcharge customers who ask for for milk substitutes like almond milk. And the condiment bar removed during the COVID 19 pandemic will return. Ceramic mugs and glasses will be available for all beverages consumed inside stores. For to go orders, baristas will again be provided with Sharpie markers and asked to write personal messages on paper cups. More comfortable seating options are on the way too, replacing the cold, uninviting store design Starbucks has used since the pandemic and the big change. Starbucks commits to deliver a basic cup of hot coffee in 30 seconds and deliver all orders within four minutes. Sounds simple, doesn't it? The thing about simple things though, is that they're not always simple to do, especially when you have 17,000 stores that need new equipment and 228,000 employees who.
- [33:54]
Narrator
May need new training.
- [33:56]
David Brown
Actually, make that 211,000 employees a month. After Nicholls address, where he said workers will always come first at Starbucks, the company reports it's cut its total staffing by 8% during the fiscal year, even though it has added more stores. That's one reason why, as Christmas approaches and demand spikes for new holiday items like the iced sugar cookie almond milk latte, some employees think that even under new management, Starbucks continues to act like a Grinch. Ryan Reynolds here for Mint Mobile. I don't know if you knew this, but anyone can get the same Premium Wireless for $15 a month plan that I've been enjoying. It's not just for celebrities, so do like I did and have one of your assistant's assistants switch you to Mint Mobile today. I'm told it's super easy to do@mintmobile.com.
- [34:51]
Cassie DePechel
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- [35:05]
Union Representative
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- [36:05]
David Brown
2024 in Los Angeles as Starbucks new CEO begins to implement his Back to Starbucks plan. Thousands of workers head back out to the picket line. The company and the union have been in negotiations on a collective bargaining agreement, but no such agreement has been reached, even though it's been more than three years since the first Starbucks store unionized. But the two sides remain at loggerheads and that's prompted a coast to coast five day strike. With workers walking off the job in 45 states, this strike gets plenty of media attention.
- [36:44]
Union Representative
It's being called the strike before Christmas.
- [36:47]
David Brown
Starbucks baristas expand their strike to 300 plus locations nationwide and on their fifth and final day, more than 5,000 employees from New York to Los Angeles participate. We are fighting for better working conditions and better wages as well as for them to give us adequate proposals for its employees.
- [37:07]
Union Representative
The workers who began picketing Friday say they're short staffed, have unpredictable schedules, unaffordable health care, broken coffee machines and face harassment on the job and unfair discipline.
- [37:20]
David Brown
The strike is the biggest Starbucks has ever seen and union numbers have continued to grow under nickel. Now 550 stores are unionized, representing more than 10,000 workers. That's about 5% of Starbucks total U.S. workforce. But soon after the strike ends, Starbucks makes a move that some employees had been asking for ever since Howard Schultz made his return to the company back in 2022. The company rolls out a new code of conduct for its stores. It requires patrons to either buy something or get out. The move comes after reports that Starbucks closed stores in San Diego and Los Angeles due to issues involving homeless people sheltering in its stores and using its bathrooms. Some patrons, like one interviewed by a TV news station in West Palm Beach, Florida, welcome the change. I appreciate it because I do not like all the homeless people that hang out in Starbucks. Nickel says the new code of conduct will give customers more reasons to stay a while. What he doesn't say, not explicitly anyway, is that it may also help Starbucks re establish its value proposition. You see, what Back to Starbucks is all about is about getting butts back in the seats of Starbucks stores. It's not that Nickel doesn't want a Starbucks customer grabbing and going or drive thruing. It's that Starbucks wants you to you when you're in the stores to walk out with something more than coffee. They want you to have an experience. Maybe it's just an easy interaction to get your Pike Place roast on your way to work. Maybe it's a fun comment a barista leaves on the side of a cup. Or maybe it's the experience of quietly sipping a beverage while writing, or at least trying to write that great American novel. Whatever. The experience inside of Starbucks. Nicholas sending a a message, a message that the experience is what defines Starbucks brand as much as the coffee. Actually, he's saying something a little different. He's calling that experience the coffee house vibe. And in late January, when the next set of quarterly financials comes out, the vibe on Wall street is surprisingly upbeat given the continued slide in the numbers. Starbucks reports same store sales fell for the fourth consecutive quarter, dropping another 4%. It also says there was a 6% dip in visits to its stores. And yet the stock jumps up almost 3% as nickel appears on CNBC to tout the progress. Speaking from the same innovation lab at Starbucks headquarters where he addressed staffers three months earlier, Nickel gives his employees, who Starbucks calls partners, a pat on the back.
- [40:04]
Customer
We're starting to see progress as it relates to our partners being in position, being supported, correctly eliminating some of the noise so that we can get after the great craft, the great quality and really have people experience, you know, the preemie experience of Starbucks.
- [40:20]
David Brown
One day later, there's more progress related to Starbucks employees. The company and the union agree to have a federal mediator help end their contract impasse. But just as things appear to finally be looking up, a key competitor decides to roast Starbucks in front of the entire country. It's February 9, 2025, Super Bowl Sunday in New Orleans. The Philadelphia Eagles are pouring it on against the Kansas City Chiefs. Third and 16 Mahomes. Rolling, looking fiery, intercepted. Picked off by Cooper. Dean gets a block. Dean is in Touchdown. And on TV sets across America, Duncan is pouring cold coffee all over its competitors at Starbucks. In an ad that cost $8 million to air, Duncan has Ben and Casey Affleck and former NFL coach Bill Belichick starring as members of a fictional boy band called the Dunkings. In a java jam, the Dunkings face off against the barista Buds. The Buds are dressed in a suspiciously Starbucksy shade of green dunking about to get roasted. But it's the Dunkings and not the barista Buds doing the roasting here. The Affleck brothers take shots at the long wait times and complex menu that has given Starbucks fits in with recent years. How much to wait a half hour to get my name spelled wrong on the cup?
- [41:52]
Customer
Nobody wants a goat milk double half caf soy milk cap. You could just brew it.
- [41:56]
David Brown
It's beans and water. Oh, damn. Listen, Duncan's for all of you, America runs on Duncan. The ad is a hit. Billboard ranks it as the number one commercial that aired during a lopsided game. Dunkin is still small beans compared to Starbucks. In 2019, before it was acquired by a group that also owns Arby's and Sonic, Dunkin made little more than a billion dollars a year. This year, Starbucks brought in 36 billion. But Dunkin's managed to catch consumers attention by playing up its blue collar New England doughnut shop identity. It also charges less. A large latte at Dunkin is a buck cheaper than the same drink at Starbucks. But Starbucks thinks it has something that Dunkin doesn't, and it's about to show that off in its own commercial. Starbucks didn't pay for its own ad during the big game, but it does have big plans for the day after the Super Bowl. The coffee chain has dubbed that Starbucks day. And it's offering free coffee to sleepy Americans trying to recover from super bowl festivities. As it hands out free coffee, the company is also serving up its new branding. It's now going by the Starbucks Coffee Company and it's got a new ad campaign to go along designed around its coffee house experience. It's called hello again. The ad kicks off with baristas arriving at a Starbucks store at dawn. They throw on the lights, fire up the espresso machines and get brewing. And it's all backed by acdc.
- [43:29]
Starbucks Marketing Voice
It starts in darkness and then suddenly, out of the darkness.
- [43:36]
Customer
Energy.
- [43:38]
Starbucks Marketing Voice
Beans, ground milk, frog shots pulled, espresso, shaking and shaking and shaking and shaking and shaking. 10 times. No more, no less. 165 degree milk poured into a double shot of dark magic and oh, that's the good stuff.
- [43:53]
David Brown
As the ad continues, customers pour into the store and settle into seats. Baristas use Sharpies to squiggle smiley faces onto paper cups. The ad flashes sepia toned images of Starbucks original store in Seattle's Pike Place Market. And it closes with drink after drink after drink being handed from baristas to customers.
- [44:12]
Starbucks Marketing Voice
This is the story of Coffee & Co. Inspired by Italy reimagining Seattle. So our baristas are ready. The world's best beans are ready. A little pick me up in your cup is ready. That feeling that only the world perfect set can give you is ready. The Starbucks you love is ready.
- [44:34]
Narrator
Hello again.
- [44:37]
David Brown
Starbucks has welcomed America back to its brand. But is America ready to come back in? Has all that slow service of the past few years and cold store designs and high prices left us with a bad taste in our mouths? Maybe we'd rather run on Dunkin now or launch ourselves to cosmics. It's early in Brian Nichols turnaround plan for Starbucks so there's not a lot of data to tell us how it's going. But a company called Earnest analytics reports a worrisome stat. It says Starbucks customers are allocating about 2% less of their coffee buying budgets towards Starbucks. Instead they're putting some of that money towards Starbucks fast growing coffee competitors. All we know for sure is this. A lot of Americans that need their daily caffeine fix and for a lot of years more of us have gotten that fix at Starbucks. That won't be an easy habit to break. Or at least that's what Starbucks is counting on. Under Howard Schultz, Starbucks exploded into a global giant. But somewhere along the way it started to lose is what made it so special in the first place. Stores went from cozy neighborhood cafes to high volume fast food style coffee factories. Over time this eroded the brand's appeal. Especially as competitors like McDonald's and Dunkin learned how to do fast even better. And do it without the hollow trappings of cosmopolitan naming conventions for things as trivial as cup sizes or the controversies that lean leaning into a public facing sense of cultural relevance can carry. And yet Starbucks still stands alone on the top of the hill of beans. That's the retail coffee industry. In his three stints as CEO, Schultz was able to protect Starbucks first placed position in the business. But he wasn't able to insulate Starbucks from a contentious unionization drive. And when his latest hand picked successor faltered both both workers and customers, Schulz couldn't resist inserting himself into the Starbucks story once more. Now well Starbucks has a plan to remain at the top of the coffee business, and it comes straight out of Schultz's playbook. Wouldn't you know it, it intends to convince customers that Starbucks still has the good stuff that brought them into the shops in the first place. Smiling service that aroma of freshly brewed coffee. A comfortable place to sit, A quickly poured drink that sends you on your way. Time will tell whether this latest reinvention, or should we call it a return to the past, will actually perk up Starbucks business or leave it feeling a bit decaffeinated. From Wondery this is episode two of Starbucks Bitter Brew for Business Wars. A quick note about recreations you've been hearing. In most cases, we can't know exactly what was said. These scenes are dramatizations, but they're based on historical research. I'm your host, David Brown. Joseph Guento wrote this story.
- [47:41]
Narrator
Sound design by Josh Morales.
- [47:43]
David Brown
Fact checking by Gabrielle Drollet. Our managing producer is Desi Blalock. Our senior managing producer is Callum Plews. Produced by Tristan Donovan of Yellowand and Kate Young. Our senior producers are Emily Frost and Dave Schelling. Karen Lowe is our producer emeritus. Our executive executive producers are Jenny Lauer Beckman and Marshall Louie for Wondry.
- [48:12]
Cassie DePechel
Hey, I'm Cassie DePechel, the host of Wondery's podcast against the Odds. In each episode, we share thrilling true stories of survival, putting you in the shoes of the people who live to tell the tale in our next season. It's February 14, 1979. Elmo Wortman and his three children are stranded on a remote Alaskan island after a massive storm destroys their sailboat. Miles from help, they have to face the brutal cold with barely any food, only a sail for shelter, and a leaky plastic dinghy. Desperate to survive, they build a raft and try to reach safety. But as starvation and frostbite take hold and days stretch into weeks, their endurance is pushed to the limit. Follow against the Odds. Wherever you get your podcasts, you can listen ad free on the Amazon Music or Wondery app.