Starbucks’ New CEO Brian Niccol May Be Going Mobile App-Based

It has become a familiar sight to The star bar: a crowded counter with cell phone orders, frustrated customers waiting for their drinks, and overworked bartenders trying to keep up with it all.

Fixing that problem will likely be at the top of new CEO Brian Niccol’s list of tasks as he turns around the struggling coffee giant when he takes over on September 9.

Investors and executives have cited operational problems as one reason the chain’s sales have lagged in recent quarters. Other culprits behind recent same-store sales declines include a weakened consumer base, boycotts and the deterioration of the Starbucks brand.

Former CEO Howard Schultz, who has no formal role at the company but remains involved, also took issue with the mobile app. He said it had become “the biggest Achilles heel for Starbucks,” in a June episode of the “Acquired” podcast.

Mobile orders account for about a third of Starbucks’ total sales and tend to be more complicated. While add-ons like cold foam or syrups are more profitable for Starbucks, they tend to take up more of a barista’s time, frustrating both them and customers.

“I agree with Howard Schultz,” said Robert Byrne, senior director of consumer research for Technomic, a restaurant market research firm. “This is not in the data, it’s in the store. That’s where the problem lies.”

In late April, current CEO Laxman Narasimhan said the company was struggling to meet demand in the morning, turning away some customers with long wait times.

Schultz said he personally encountered the problem when he visited a Chicago location at 8 a.m.

“Everyone shows up and all of a sudden we’re in a mosh pit, and it’s not Starbucks,” Schultz said in the “Acquired” episode.

Making mobile ordering more efficient is one of the key ways Niccol can reduce crowding at Starbucks.

When Schultz was building Starbucks into the coffee giant it is today, he positioned it as a “third place” between work and home. The chain has since shed that reputation as more customers rely on the convenience of mobile ordering and prefer not to linger in its cafes.

“Since it’s a beverage and I’m consuming it a lot in the car or on the go, it has to be extremely convenient,” Byrne said.

But Starbucks has not made significant changes to its operations to anticipate this shift in consumer behavior.

In 2017, Schultz stepped down as CEO for the second time, handing the reins to Kevin Johnson. Before joining the coffee chain as COO, Johnson was CEO of Juniper Networks, a technology company. Under his leadership, Starbucks invested in technology and continued to grow digital sales, but the restaurant business was already struggling when he left the company.

Schultz returned to serve as interim CEO when Johnson retired in 2022.

“The company didn’t do a good job of anticipating the technological improvements that needed to be made to avoid what was happening. … The stock was at record highs, the company wasn’t investing early, not paying attention to the speed of the mobile app and what it was becoming until it was too late,” Schultz said.

Shareholders have also experienced frustration with digital orders and believe this is a critical area that Niccol needs to address.

“The problem you have in New York City, for example, is the wait time,” said Nancy Tengler, CEO and chief investment officer of Laffer Tengler Investments, which owns shares of both Starbucks and Chipotle. “And then mobile orders take precedence over in-store orders. [Niccol’s] “We’re going to have to somehow turn the tables to get people to spend more time and money in stores.”

Mobile ordering issues have increased pressure on baristas. Burnout, fueled in part by the app, has helped inspire some employees to unionize, starting in 2021.

In November, Starbucks Workers United, which now represents workers at about 450 of the chain’s stores across the U.S., pressured the company to disable mobile ordering during promotions. (Starbucks said at the time that it was already in the process of making the change possible.)

Digital sales are not the same burden for Niccol’s current employer, Chipotle.

In the last quarter, 35% of the company’s revenue came from online orders. The pandemic fueled a shift to online orders that has persisted, as the share of digital orders jumped from 18% in 2019.

When Niccol joined Chipotle in 2018, most of its restaurants had already installed a second prep line dedicated to digital orders, aiming to avoid bottlenecks as online sales became more important to the company. That same year, it also began adding drive-thru lanes just for online order pickup, which it calls “Chipotlanes.”

During his six and a half years at Chipotle, Niccol and his executives have increased digital sales through several promotions: sports star favorites, limited-time deals, a rewards program and the long-awaited launch of quesadillas. In particular, quesadillas became a digital-only option because they would otherwise slow down operations.

Chipotle has also been testing automation to prepare burrito bowls ordered through its mobile app, thanks to a partnership with robotics company Hyphen.

Starbucks has taken steps to speed up service and improve the barista experience.

In 2022, under Schultz, Starbucks introduced a reinvention plan that included addressing bottlenecks through new equipment and other measures to accelerate service.

Narasimhan has largely stuck with this strategy. In February, his mobile app finally started showing customers the progress of their orders, giving them a better idea of ​​when their drinks will be ready. And in late July, Starbucks rolled out its “Siren Craft System” across North America, a series of processes to make drinks faster and baristas’ jobs easier.

But the problem for Starbucks may require more drastic measures.

For example, the rollout of equipment has been slow, with about 40% of North American locations expected to install the new machines by the end of fiscal 2026. Accelerating that timeline could cut service times in half, as promised at Investor Day 2022, and reduce stress for baristas.

“It is not an easy task at all, it will take time, training, investment and [capital expenditure]said Andrew Charles, an analyst at TD Cowen.

“We think Brian has enormous credibility. If he can tell investors, ‘This is the answer to the problem we have,’ and explain why he thinks that way, they’ll get away with it,” Charles said.