Starbucks has to decide whether they're an experience brand or product brand, says Peter Atwater

Come back to Starbucks. Welcome back to Starbucks. Welcome back to Squawk Box. We’re talking about Starbucks. Let’s hope that never happens. Let you, you know. Well, that never happens to me. Yeah. I mean that Those are your work I’ll come back to or would you like working at Starbucks you like I’d be happy to wear the green. Yeah, sure. Would you like a happy Meal with that That’s not that’s not your welcome back to not that there’s anything wrong with you know about the Starbucks. The shares though getting crushed. I mean, just hammered this week after the company announced its worst quarterly performance since the pandemic. And I mean, I think it’s probably the worst quarter of these folks have ever announced in their history. It’s the third consecutive guidance cut. Now joining us to discuss the management issues at play for the company’s CEO, let’s talk to adjunct economics lecturer at Williams and Mary Peter Atwater. He’s a behavioral economist and author of the Confidence Map. Good morning to you, Peter. I mean, this is going to be a challenge for this company to get back on its feet in a meaningful way. And I think the question is, can they do it? And frankly, how much time do they have to do it before an activist shows up on the doorstep? Yeah. So Steve Liesman was talking about time and pressure. And I would say that Mister Nara Simmons has very little time and enormous pressure. He he comes in after a cultish boomerang CEO, which is a difficult challenge to begin with. And more than that, he is an accelerator, not a turn around guy. And the challenge with that is he’s he’s arriving into an organization that looks like Diana Ross and The Supremes. With all due respect to the folks on the leadership team, they have been backup singers to Mr. Schultz. And so the the challenge for the company in this is that they have uncertainty and powerlessness up and down the organization and now with shareholders, customers, suppliers. And So what he has to do is to go back to the basics and it’s not clear to me that he is a a crisis leader in the context of the the those that have the skills to navigate an environment of powerlessness and uncertainty effectively. OK. But the flip side is do you think an an activist could actually show up? And the question is what would an activist do because this is not a traditional financing financial engineering proposition. I mean, I could see people deciding that they want to, you know, spin off the China operations sort of Yum style or something, but that’s just rearranging the deck chairs. I think this is actually an operation story. I mean, I think unfortunately, too many customers have gone to the various stores, especially in places like New York where just the experience is not what it needs to be. And that’s going to cost the company money. Yeah. And the company has to decide, are they an experienced brand or a product brand? And right now, they look like Panera and Pret A Manger all merged together. They’re they’re trying to do 2 things that are in conflict with each other. So I agree with you this is an operations. This is a a down in the ground kind of turn around that has to start with the basics not from the top to down. This is a bottoms up return. I do think this would be an ideal candidate for a turn around activist somebody like like a Bill Ackman who’s all about the operations. The question is is this at a point that’s yet attractive I I I don’t think. And then who is your magician? Who need, I mean, who is the magician who’s going to run this company? And there’s something to be said about the fact that for some reason, this company seems to only work really well when Howard Schultz is running it. Yeah. And. And that’s the that is the problem. It’s a problem with the board who’ve who’ve been complicit in that now bringing him back over and over. I I think that if you’re going to look internally, you want to find the leader who has the greatest social capital, for whom people will rally around, who is open to news, who knows the organization from the bottom up, who’s been on the ground from the beginning. Now having said that, if it’s me, I’m looking at somebody who’s at Chipotle who’s demonstrated how to do food logistics extraordinarily well and who’s navigated this tension between to go and dine in what what do you think Starbucks should be? I mean I think that is also part of the question because the experience has fundamentally changed. You know it used to be and Howard used to talk about it being this third place where you would go and you would, it would be experiential, you would talk to the baristas behind the counter. There was, there was this remarkable interaction at its peak at at when when Starbucks was at its best. Today for the most part, at least for me, you’re either going through a drive through or you’re ordering on the app, you’re walking in. Unfortunately sometimes we were still waiting on line and then you’re you’re picking up the food often times with very little physical interaction or conversation with anybody. And then the lines are are long, the stores aren’t always as clean as they should be. And you know that there’s obviously a product mix question, but I think it’s about something even else. And people talk about the soul, the core of this company, what is it supposed to be? Yeah, I think, I think they have to choose. Are they an experienced brand? Are they, is there job to serve or is there a job to produce? And and you pick up, it’s a it’s a question of control. It’s a question of who’s got it. It’s a question of certainty. And and Andrew, I I wouldn’t underestimate their challenge. As confidence falls, we become naturally more impatient. So those lines really matter because they now feel endless and that is a problem for that brand. Would you bring Howard back? No, absolutely not. Now the problem with the Boomerang CEO is you keep bringing them back and this. It’s like bringing back a a star musician. They they were great for a time but but culture changes and you need to have a leader who is for the future not bringing the past. I I see the same issue with Disney. These Boomerang CEOs who never leave the stage is creating a intense fragility inside their organizations.