Starbucks intends to resume negotiations with trade unions over problems in its stores

When Starbucks and the barista union resume contract negotiations this week, workers may have regained momentum — courtesy of the company’s CEO.

Last month, the coffee giant reported an objectively complex quarter. U.S. same-store sales dropped 3% and traffic dropped 7%. As a result, the company lowered its forecast for 2024.

CEO Laxman Narasimhan acknowledged that Starbucks is seeing a more cautious consumer when it comes to spending, but also cited the need to make improvements in stores amid troubling trends. Starbucks reported incomplete orders on its mobile app in the mid-1980s and found that occasional customers were coming in less often.

Narasimhan, in prepared remarks for Wall Street analysts, cited some of the challenges union workers have highlighted as they push for better working conditions.

“Particularly in our U.S. stores, we are focused on creating a more stable environment for partners by investing in equipment innovation, process improvements, staffing, planning and waste reduction, all things that our partners value and prioritize, creating a more satisfying work environment in our stores while reducing risk to our business,” Narasimhan said on a call with analysts.

In an interview on CNBC’s “Squawk on the Street,” he added that throughput has improved and said the company’s roadmap will continue to build on that momentum, including store improvements and better value communication.

“From quarter to quarter, we increased the speed of service provision. “If we look at the processes we implement, especially during peak times, we find that we have opportunities to improve this even further through changes to the processes and tools we provide to partners during peak times,” Narasimhan said.

For Workers United, the union behind the Starbucks organization, his admission that more could be done was promising.

Organizational work began almost three years ago in Buffalo, Modern York, under the leadership of then-CEO Kevin Johnson. At the time, Starbucks was a company long known for its progressive employee benefits.

However, baristas, emboldened by the experience they gained during the pandemic, insisted on changes in company cafes. More than 430 union-owned stores and two chief executives later, both sides have made “significant progress” in contract negotiations, adopting a more confident tone after a successful two-day session last month.

Starbucks and the union are meeting to continue working on a framework that will underpin any future single-store contract.

“I really believe that we’re seeing the company at this point acknowledge that there are problems, significant problems,” Michelle Eisen, a Workers United delegate and an original member of the company’s first organized labor union in Buffalo, told CNBC before the negotiations.

“We heard Narasimhan make this statement after the earnings release that he was aware of staffing issues at stores,” said Eisen, who has been with the company for more than a decade and is among 150 delegates participating in in-person bargaining sessions with Starbucks on behalf of the union.

“I think it’s a recent world now where I can say that the CEO has stepped in and said, ‘Look, we have some problems, we know we have them, we want to work to fix the problems,’” Eisen said. “And as an employee at a unionized facility with proposals on the table to lend a hand solve these problems, that’s exactly what I want to hear.”

In internal surveys and bargaining committee meetings, union partners consistently rank “staffing and scheduling” as a top priority issue. The enormous majority of represented partners report habitual staffing shortages, and the enormous majority of partners report that they are scheduled to work fewer hours than they want or need.

The union also pushed for better wages and benefits.

Starbucks says it has made significant progress in staffing and scheduling over the past two years. The advanced staffing model is able to take into account both historical trends in hours allocated per store, as well as current trends, available product types and upcoming promotions, the company says. Starbucks says its data confirms that partners now have more hours and that partner retention and sentiment has increased across the U.S. as schedules have become more stable and consistent.

Improving staffing will likely be even more critical as Starbucks anticipates an raise in traffic and orders.

In July, Starbucks plans to make a mobile ordering and payment app available to members who don’t exploit the loyalty program in an attempt to regain its casual customer base. This will allow you to reach all your customers with recent products and promotions to raise traffic.

It is also expected to introduce a so-called siren system: recent equipment and protocol that takes into account customer ticket times. The Siren system includes a custom ice dispenser, milk dispensing system and faster blenders to reduce the number of steps required by baristas and deliver drinks to customers faster. It will reach 1,000 stores in July.

“It’s a terrible feeling to be on that floor, pull out the sticker, look at the time, and then look at the clock on the wall and realize you’re already eight minutes behind,” Eisen said of mobile ordering.

“Eight minutes isn’t very long. But when you do 100 transactions in half an hour… and you realize you probably have 20 drinks left, it’s a bad feeling,” she said.

There’s another call for change at Starbucks stores that could make a difference at the bargaining table: Former Starbucks CEO Howard Schultz, in a LinkedIn post after the company’s earnings report, said management needs to spend more time with employees to understand ongoing challenges.

This is the third time he has spoken publicly about Starbucks and its business since he left the company and its board of directors last year. And it was a noticeable change in tone from Schultz’s return to the company in 2022 to respond to the union challenge with a much more combative approach.

Before Narasimhan took the helm of the company, he mentored Schultz for six months. He spent time in stores with baristas, even earning a barista certification, before becoming CEO in 2023.

“I have emphasized that the company’s recovery must start at home: U.S. operations are the main reason for the company’s decline,” Schultz said. “Stores require a maniacal focus on the customer experience through the eyes of the salesperson. The answer is not in the data, but in the stores.”

In response, the coffee giant said at the time: “We always appreciate Howard’s perspective. The challenges and opportunities it highlights are the ones we focus on. And like Howard, we are confident in Starbucks’ long-term success.”