It is generally never worthwhile to focus energy on blame versus the problem when it comes to communicating—rather focus on solving things and be strategic in your response. It is also a bad idea to make your messaging about finding fault, and it is a particularly poor choice to target your customers. Obvious, right? Yet, when Starbucks reported a significant drop in sales during its recent quarterly earnings call, its CEO Laxman Narasimhan called out customers and severe weather—in that order. While it is not unusual for a company to have a bad quarter, or to make a messaging mistake, going after your core audience will never contribute to a rebound.
Let’s take a closer look at where the Starbucks statement went wrong and how external commentary snowballed from there.
1. The Buck Should Stop with Starbucks
Starbucks shared it had a drop in sales (its first since 2020) and subsequently slashed its financial forecast. To be fair, CEO Narasimhan opened the call with: “Let me be clear from the beginning, our performance this quarter was disappointing,” setting expectations quickly for the resulting report. He went on to discuss increasing customer frugality and offered an explanation that during the busiest hours, customers using ‘Mobile Order & Pay’ “put items into their cart” and sometimes chose not to complete their order, citing “long wait times of product and availability.” Narasimhan also claimed that “severe weather” impacted U.S. and total company revenue by nearly 3%.
Lessons Learned
Knowing ahead what the report was going to look like, the best thing Starbucks could have done is forewarn investors. Short of that, Narasimhan needed to open as he did but also take full responsibility for the drop. He also needed to detail strategies to turn things around versus external reasons for why the shortfall happened and then offer plans that did not match up with stated causes. As former Starbucks CEO Howard Schultz said, “Own the shortcoming without the slightest semblance of an excuse.” Yes. And above all, do not name your customers as the reason for fewer sales.
2. Squawking About Starbucks
Jim Cramer, CNBC anchor for “Squawk on the Street,” interviewed Narasimham the day after the earnings release, and investigated the claims made by the CEO. Specifically, Cramer asked why investors were not warned and said other quick-service restaurant (QSR) brands did not struggle due to a reason such as weather. From our point of view, Narasimhan did not rise to the challenge in his response. He reiterated earnings call responses and asserted a greater focus would be made on the “occasional” (vs. loyal) customer to help set Starbucks straight. As to why Starbucks did not warn investors, Narasimhan said the company had been busy “working on action plans” and sees a “foundation of a business that is really strong.”
Lessons Learned
This interview started hot and did not let up. A combative conversation can certainly be challenging to navigate, but this was Narasimham’s opportunity to reframe his earnings comments and clearly take ownership. Narasimham instead doubled down. Repeating the earlier stated reasons for poor earnings and dancing around “plans,” while saying the company is solid did not help prevent confidence from falling further. Jim Cramer’s Charitable Trust, the portfolio used for the CNBC Investing Club, owns Starbucks shares, and the Club has downgraded its rating and cut the price target for Starbucks’ stock. Overall, Starbucks’ share price fell by 15 percent that day.
3. How Former Starbucks CEO Howard Schultz Made Things Worse
Then, former CEO Howard Schultz posted on LinkedIn. Making several valid points, Schultz noted the current CEO’s “spin” did not help or necessarily make sense—focusing on occasional customers going forward, while at the same time blaming their frugality. Schultz said, “It’s not the miss that matters. It’s what comes next. What’s the diagnosis of the problem? What’s the impact on morale? And what’s the strategy to fix it?” Schultz chiming in was not within the current Starbucks leadership’s control. However, assuming Schultz does love the company he built over many years and returned to as CEO after “retiring” twice, one wonders how the public criticism is meant to help.
Lessons Learned
Schultz said the problem is in the stores and not the data. But to Narasimhan’s credit, he works a half-day shift in the stores each month to get direct insight into this very thing. Schultz participated in the recruitment of Narasimhan, so it seems odd to be undermining Narasimhan at this challenging juncture where missteps already have been made. PR Daily’s Editor in Chief Allison Carter shared this about the challenges in this communications blunder: “But overall, it’s Schultz who comes off the worst here, publicly backseat driving under the guise of thought leadership. If he wants to communicate with Starbucks leadership, he certainly has the means to do so. But public criticism of a former employer rarely reflects well.” So, perhaps Schultz looks bad, maybe Narasimhan does not look more or less competent, but regardless, it is hard to see how the comments help Starbucks win.
Since the call, Starbucks has been moving ahead with proposed fixes to improve mobile ordering wait times—meaning those impatient customers will no longer abandon their carts—so, we’ll see how the finance of it all improves. Outside of the numbers though, there is work they can do on their words.
And despite all this, please note that I am a Starbucks fan! I visit frequently and hope for their very best! It is in these blunders that we all get to learn. So thank you to our friends at Starbucks.
More blunders to come… Drop me a note on your thoughts and reactions, and I will see you online!
Best,
Aaron Blank
President and CEO
Fearey