Good morning. This week brought convincing proof that Starbucks’ comeback under CEO Brian Niccol is for real. The coffee chain on Wednesday reported that quarterly U.S. comparable sales rose 7.1%, their second straight gain. What’s more, for the first time in two years, profit and sales both rose, and customer visits increased, showing the investments Niccol has made in more staffing, higher wages, and store glow-ups are starting to pay for themselves.
The CEO’s overarching strategy has been to bring the human touch and pleasure of ordering back to Starbucks. Those experiences were damaged by the company’s efforts to contain costs, which led to understaffed and often chaotic cafés and bad decisions like removing seating at many stores.
“Customers now believe their Starbucks purchase is worth it compared to a year ago,” Niccol told Wall Street analysts earlier this week. Of course, no CEO can fix a company on his own, and he wouldn’t have gotten Starbucks back into shape without employee buy-in, from his C-suite all the way to his front-line workers. One of Niccol’s key hires was his former Taco Bell colleague Mike Grams, now his COO at Starbucks. I spoke to Grams this week, and he told me that Starbucks’ $500 million investment last year in more staffing has improved customer service, adding that increased benefits and incentives has meant less churn in store supervisory roles. (A union representing 600 of Starbucks’ U.S. stores disagrees with company claims about how good those benefits really are.)
Grams told me that, “This isn’t just a turnaround, but a reawakening of what’s made Starbucks exceptional in the first place.”
Starbucks’ reinvestment in its employees reminds me a lot of what went on at Walmart. The turnaround a decade ago that transformed that retailer into an ecommerce powerhouse would not have happened without the decision to vastly improve wages and benefits, often to the dismay of Wall Street, which fretted over profit margins. More recently we saw the same thing play out at Macy’s, which now has more employees tidying floor space and manning the cash registers, fueling the department store’s comeback.
A focus on leanness is often a defensive move by a company that doesn’t know how to grow anymore. But Starbucks’ $500 million investment has been central to returning it to sales growth in the U.S., which in turn has helped its market cap rise almost $20 billion since last summer. As the old adage goes, sometimes you have to spend money to make money.—Phil Wahba
Contact CEO Daily via Diane Brady at diane.brady@fortune.com
Top leadership news
A global recession within 8 weeks?
The global economy will plunge into a recession within the next four to eight weeks unless the Strait of Hormuz is reopened, according to Mohamed El-Erian, the former CEO of Pimco, who served as chair of President Barack Obama’s Global Development Council. Consumers, particularly in Europe and Asia, are already feeling the sharp end of the conflict, and the U.S. isn’t invincible.
Jamie Dimon’s shifting economic concerns
For years, Jamie Dimon has said that geopolitics is the greatest risk to the global economy, but now he considers cyber a bigger threat. “The bad guys can use cyber, and they’re going to get stronger and more powerful in terms of finding vulnerabilities,” he said at the Norges Bank Investment Management conference in Oslo.
Aerie wants to win the anti-AI backlash
As anti-AI backlash continues to grow, the loungewear company Aerie is leaning into it. The company launched a campaign mocking the limitations of AI by juxtaposing real women against lifeless AI-generated ones. “Aerie Real was just celebrating women for who they are,” said Jennifer Foyle, president and executive creative director of American Eagle and Aerie, adding: “and so now we are going to go to the next level with it.”
The markets
S&P 500 futures are up 0.09% this morning. The last session closed up 1.02%. The STOXX Europe 600 was up 1.22% in early trading. The U.K.’s FTSE 100 was down 0.57% in early trading. Japan’s Nikkei 225 was up 0.38%. Markets in China, Hong Kong, South Korea, and India are closed today. Bitcoin was steady at $77K.
Around the watercooler
AI’s entry-level hiring nightmare is another gift to boomers’ retirement plans by Catherina Gioino
Elon Musk likes Bitcoin—but he just told a jury most crypto coins are scams by Jack Kubinec
Public schools in Texas banned cellphones. One district has already seen 200,000 more library books checked out by Preston Fore
GM just boosted its U.S. manufacturing spend to $6 billion in one year—and it may be returning to the idea that made it great by Nick Lichtenberg
CEO Daily is curated and edited by Andrew Wyrich, Jason Ma, Claire Zillman, and Lee Clifford.
This week, Starbucks demonstrated a significant turnaround under CEO Brian Niccol, reporting a 7.1% increase in quarterly U.S. comparable sales, marking its second consecutive gain. For the first time in two years, both profit and sales have risen, along with an increase in customer visits. These improvements suggest that Niccol’s investments in staffing, higher wages, and store enhancements are starting to yield positive results.
Niccol’s strategic goal has been to restore the personal experience of ordering at Starbucks, which had suffered due to previous cost-cutting measures leading to understaffed and chaotic stores, as well as the removal of seating in many locations. He noted that customers now feel their Starbucks purchases are more worthwhile than they were a year ago. However, it’s important to recognize that such a turnaround requires collective effort, including the support of employees at all levels. A key figure in Niccol’s strategy is Mike Grams, the COO, who previously worked with Niccol at Taco Bell. Grams highlighted that Starbucks’ $500 million investment in staffing has enhanced customer service and reduced turnover in supervisory roles, although a union representing some Starbucks employees disputes the effectiveness of these benefits.
Grams emphasized that the company’s efforts signify not just a recovery, but a revival of what has traditionally made Starbucks exceptional. This reinvestment in employees parallels successful strategies implemented at other major retailers, such as Walmart, which improved wages and benefits to transform into an e-commerce leader, and Macy’s, which has seen a resurgence by increasing staffing levels.
Starbucks’ focus on investing in its workforce contrasts with the often defensive strategies of companies that feel unable to grow. The $500 million investment has been pivotal in returning Starbucks to growth, contributing to a nearly $20 billion increase in its market capitalization since last summer. The adage “sometimes you have to spend money to make money” is fitting here as Starbucks aims to stabilize and grow its business.
In other industry news, Mohamed El-Erian, the former CEO of Pimco, warned that the global economy might enter a recession within the next four to eight weeks unless the Strait of Hormuz is reopened. He pointed out that consumers in Europe and Asia are already feeling the effects of current geopolitical tensions, indicating that the U.S. may not be immune to these challenges.
Jamie Dimon, CEO of JPMorgan Chase, has shifted his perspective on economic risks, now identifying cyber threats as a more pressing concern than geopolitical issues. He expressed that adversaries could leverage cyber capabilities to exploit vulnerabilities, highlighting an evolving risk landscape.
In the retail sector, the loungewear brand Aerie is countering the growing backlash against AI by launching a campaign that showcases real women in contrast to AI-generated images. This initiative aims to celebrate authenticity and resonate with consumers who value real human experiences.
In market updates, S&P 500 futures showed a modest increase of 0.09%, following a previous session that closed up 1.02%. The STOXX Europe 600 index rose by 1.22%, while the U.K.’s FTSE 100 experienced a slight decline of 0.57%. Japan’s Nikkei 225 was up by 0.38%, and markets in China, Hong Kong, South Korea, and India were closed. Bitcoin remained stable at approximately $77,000.
In brief news highlights, there are discussions around AI’s impact on entry-level hiring and its implications for the retirement plans of older workers. Elon Musk expressed support for Bitcoin while also cautioning that many cryptocurrencies are scams. In Texas, a public school district that banned cellphones has seen a surge in library book checkouts, with 200,000 additional books borrowed. General Motors has increased its U.S. manufacturing budget to $6 billion, suggesting a potential return to its foundational strategies. Additionally, a public crypto company linked to former President Trump has acquired a startup previously associated with a cannabis entrepreneur in a deal valued at $43 million.
Overall, Starbucks’ recent performance and strategic investments showcase a decisive shift toward enhancing customer experiences and employee satisfaction, while various leaders across industries continue to navigate an increasingly complex economic landscape.
