Starbucks has too many baristas in the boardroom

Triple Shot. Starbucks’ ailments are becoming as complicated as a multi-shot iced latte with all the syrups. The $90 billion coffee chain’s shares are down nearly a fifth this year as sales slump at home and abroad. Such turmoil is a siren call for rabble-rousing activist investors like Elliott Investment Management. But with officially designated founder Howard Schultz, among other parties, looming over proceedings, brewing up a boardroom fix will take extra care.

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, CNBC reported on Monday. Starboard Value has taken a stake, too, though has not yet made any demands, according to Reuters.

For Chief Executive Laxman Narasimhan, installed in March 2023, activists add yet another ingredient to his thus far fraught tenure. Former three-time boss Schultz, who serves as chairman emeritus and observes board meetings, has opposed a settlement, the Financial Times reported, and has taken public potshots at current leadership. Meanwhile, a long-running back-and-forth with disgruntled unionized employees reached a careful detente earlier this year.

Maintaining the peace between these loud voices - Schultz is a significant shareholder, and union organizers threatened a proxy fight - is crucial for Elliott and Narasimhan if they want 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, according to executives, who say that the remaining, more fickle java drinkers are where the problem lies.

Serving their 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, falling slightly again this quarter from the year prior.

Narasimhan, for his part, sounds willing to undergo big changes, including partnerships in China and spending $600 million over three years to digitize stores. For now, Elliott is open to keeping him in place, according to reports - probably a wise move, given Schultz’s countervailing sway. The challenge will be to keep any fixes on-track. After all, it’s hard to pull a perfect shot with too many baristas grasping at the levers.