Business Wars: Starbucks' Bitter Brew | Back in Black | Episode 2 Summary

Host: David Brown
Podcast: Business Wars by Wondery
Release Date: May 14, 2025

1. The Historic Strike and Red Cup Rebellion (00:19 - 02:40)

The episode opens on November 16, 2023, in Chicago, amid the largest strike in Starbucks history. On North Broadway, baristas from over 150 stores join the "Red Cup Rebellion," protesting during the company's significant promotional event, Red Cup Day. A striking worker poignantly states at [01:12], "So we just have basically an infinite amount of drinks and we're understaffed and we're underpaid and we're sick of it." This widespread labor unrest marks nearly two years since Starbucks first saw unionization efforts in 2021.

2. Leadership Struggles and Howard Schultz’s Comeback (01:19 - 02:40)

Howard Schultz, the iconic founder of Starbucks, emerges from retirement to counter the unionization drive. Despite his efforts, including public apologies and promises to improve working conditions, the movement persists. Schultz eventually steps down in spring 2023, appointing Laxman Narasimhon as the new CEO. However, Narasimhon faces significant challenges, failing to resolve labor disputes, leaving employees disillusioned. A long-tenured Chicago barista shares at [02:21], "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."

3. External Pressures: Geopolitical Tensions and Global Competition (12:40 - 15:00)

In December 2023, global issues exacerbate Starbucks' woes. Protests erupt in Helsinki, Finland, as customers boycott Starbucks, erroneously perceiving the company as taking sides in the Gaza conflict. Additionally, Starbucks grapples with declining sales in China, where Luckin Coffee has overtaken it as the leading coffee chain. These challenges coincide with internal struggles, placing Starbucks in a precarious position both domestically and internationally.

4. McDonald's Cosmics and the Intensifying Competition (05:06 - 11:00)

McDonald's launches "Cosmics" in suburban Chicago, a new drive-thru-only concept designed to directly compete with Starbucks' cold beverage offerings and speed of service. Customers flock to Cosmics, frustrated by traditional Starbucks wait times, highlighted by a customer at [10:15] asking for his order after an hour-long wait. This move underscores the increasing competition from fast-food giants and specialized coffee chains, forcing Starbucks to rethink its operational strategies.

5. Financial Struggles and CEO Shake-Up (15:00 - 19:55)

By early May 2024, Starbucks faces a historic financial downturn. Reporting nearly a 2% revenue drop and a 15% fall in net income, the company's stock plummets. At [15:16], CEO Laxman Narasimhon addresses the situation, attributing it to persistent inflation. However, the leadership's handling of operational inefficiencies and customer dissatisfaction draws criticism. Howard Schultz reenters the narrative, publicly criticizing the current management's focus on data over employee welfare, further destabilizing leadership confidence.

6. Board Intervention and Brian Niccol’s Appointment (19:55 - 28:29)

Amidst declining performance, Starbucks' Board of Directors, led by Melody Hobson, decides to replace Narasimhon with Brian Niccol, renowned for his successful turnaround of Chipotle. Negotiations highlight Niccol's high compensation package and demands for flexible working arrangements. By August 2024, Niccol is installed as Starbucks' new CEO, and the stock responds positively, soaring by over $20 billion. However, skepticism remains regarding his ability to address the deep-seated issues plaguing the company.

7. Niccol's "Back to Starbucks" Strategy (28:29 - 33:56)

Brian Niccol unveils his "Back to Starbucks" plan, emphasizing a return to the company's foundational values of being a "third place" for community gathering. He commits to simplifying the menu, reducing pricing for milk substitutes, reinstating the condiment bar, and enhancing the in-store experience with personal touches like handwritten messages on cups. Despite these initiatives, Starbucks faces logistical challenges in implementing changes across its 17,000 stores and managing a massive workforce of over 211,000 employees monthly.

8. Renewed Labor Disputes and Nationwide Strikes (33:56 - 37:19)

As Niccol attempts to revitalize the brand, labor tensions escalate. In July 2024, a five-day nationwide strike erupts, involving over 10,000 workers across 550 unionized stores. Union representatives cite issues like unpredictable schedules, inadequate wages, and workplace harassment. This strike represents a significant hurdle for Niccol's efforts to stabilize and improve company morale.

9. Marketing Battles: Dunkin vs. Starbucks (37:19 - 44:37)

The competitive landscape intensifies with aggressive marketing from Dunkin'. On Super Bowl Sunday, Dunkin' airs a high-profile ad featuring celebrities like Ben and Casey Affleck, directly mocking Starbucks' service inefficiencies and complex menu. In response, Starbucks launches its own campaign, "Hello Again," celebrating its heritage and commitment to quality service, backed by a dynamic AC/DC soundtrack. These marketing wars aim to reclaim customer loyalty amidst a fragmented market.

10. Continued Struggles and Uncertain Future (44:37 - End)

Despite strategic initiatives, Starbucks continues to face declining same-store sales and reduced customer visits. Niccol's efforts to enhance the in-store experience and streamline operations yield mixed results, with some financial improvements but ongoing challenges in labor relations and market competition. An Earnest Analytics report notes a 2% decrease in consumers' coffee budgets allocated to Starbucks, indicating shifting consumer preferences towards competitors.

The episode concludes by reflecting on Starbucks' journey from a beloved global brand to its current state of crisis. Howard Schultz's legacy and the company's attempt to return to its roots highlight the complexities of balancing growth, employee satisfaction, and customer experience in a rapidly evolving market.

Notable Quotes

• [01:12] 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."

• [02:21] Starbucks Worker:
  "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."

• [28:29] Jim Cramer:
  "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."

• [31:06] Brian Niccol (in his address):
  "We are going to get back to Starbucks. Focus 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."

• [32:11] Brian Niccol:
  "This is the moment of truth. This commitment will drive every decision we make."

• [40:03] Brian Niccol:
  "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."

Conclusion

"Business Wars" paints a comprehensive picture of Starbucks' tumultuous journey in recent years, grappling with labor disputes, leadership changes, and fierce competition. As Brian Niccol strives to steer the company back to its storied past, the path remains fraught with challenges. The episode underscores the delicate balance between honoring a brand's heritage and adapting to contemporary market demands, leaving listeners to ponder whether Starbucks can regain its former glory or if it will succumb to the pressures of a dynamic and competitive industry.