Incoming Starbucks (SBUX) CEO Laxman Narasimhan told CNBC on Wednesday his vast experience in consumer-facing leadership roles will benefit him when he takes over the top job next year. That consumer experience combined with the fact he oversaw major improvements during his time as chief executive at Lysol and Enfamil maker Reckitt Benckiser are reasons we think this is a fantastic hire . Starbucks is a “very special company,” Narasimhan said in an interview alongside three-time CEO Howard Schultz, who has been serving as chief executive on an interim basis since earlier this year when Kevin Johnson retired. We were watching their appearance closely because Starbucks is one of the Club’s newer holdings, one that we’ve been building slowly on weakness in recent weeks. “Nothing in my past will fully prepare me for it, but at the same time, a lot of things I’ve done in the past I can bring to bear for this company,” said Narasimhan, in his final weeks at Reckitt. Before that, he worked at PepsiCo (PEP) from 2012 to 2019, and he also spent roughly two decades at McKinsey & Co., focused on consumer products, retail, and technology. Narasimhan said the work that Schultz — previously Starbucks CEO from 1986 to 2000, and also from 2008 to 2017 — has done since rejoining the coffee chain sets the stage well. “The one thing I wanted to be sure of is that there would be investments made in order for us to renew the partner experience, in order for us to renew the customer experience,” Narasimhan said. “Some of the things Howard has done ever since he’s come in, in terms of some of the bold decisions he’s made, made me actually a lot more comfortable. So, I’m at peace.” How we got here After helping grow Starbucks from a Pacific Northwest coffeehouse operator to a global powerhouse, Schultz has now been working to reinvent the company in the face of a barista unionization push and changes to customer behavior that accelerated during Covid. Faith in these efforts is a key reason why the Club started a position in Starbucks late last month. Schultz’s actions so far included suspending the company’s stock buyback program to free up cash “to invest more profit into our people and our stores,” he wrote in April when he announced the decision . The dividend was untouched. While Starbucks shares tumbled on that buyback suspension announcement, Wall Street in general has tremendous confidence in Schultz’s leadership. For example, the stock fell in late 2016 when Starbucks said Schultz, in his second stint as CEO, would be stepping down again and would be replaced by Johnson. Then, in March when the company said Schultz would be returning to the company as interim CEO, Starbucks shares soared. A relatively muted stock reaction to Narasimhan’s appointment as full-time CEO suggests most investors are fans of the hire and succession plan — just like we are at the Club. “I am never coming back again because we found the right person,” Schultz told CNBC. “In 2008, when I did come back, Starbucks was in a much different position. We did not have demand in our stores. We have record demand today. Laxman is coming in with the wind at his back.” Transition plan: ‘Six months really of learning’ Schultz isn’t fully stepping away, though. Not only will he stay on the board and be an advisor to before and after Narasimhan becomes CEO in April 2023, there’s an elongated and slightly unusual transition. Narasimhan is set to come aboard at Starbucks in October and begin to immerse himself in the company, including taking a 30-hour barista course and visits to coffee farms. Narasimhan likened it to an apprenticeship, while Schultz said it “speaks to the humility and the confidence that we have in each other, we have in the future of the company.” “Howard and I co-created this,” Narasimhan said. “Essentially, I’m a sitting CEO, but as of Oct. 1, I have no [profit and loss statement], I have no budget, I have no people reporting to me. It’s actually a very liberating experience in so many ways. It’s a unique opportunity for me to apprentice very close to an iconic founder in an iconic company with an iconic brand.” He added, “It’s six months really of learning and getting steeped in the culture.” With the CEO announcement out of the way, the next key event for Starbucks is this coming Tuesday, Sept. 13, when the company hosts an investor day in Seattle. The event is expected to provide updates on long-term strategy and targets. We will be paying close attention to management’s presentations. Schultz on inflation, unions, China Ahead of the event, Schultz did provide commentary in the CNBC interview on a couple other important topics for Starbucks investors such as inflation’s impact on demand, unionization and operations in China. “We haven’t seen any attrition, whatsoever, that demonstrates to us” that Starbucks’ coffee is something “customers want to give up,” Schultz said. “Despite the fact we had to raise prices about 5% over the past year because of inflation, our business is quite strong.” Schultz also sought to downplay the organizing efforts happening at some Starbucks locations, although the company has, in response, instituted a number of changes to worker benefits and compensation. It also faces allegations of wrongful retaliation over union pushes . “There’s 9,000-company owned stores. Only 300 have been petitioned,” Schultz said. “I think there’s been a lot made of this that’s probably greater. It’s not going to be something that is going to significantly change the course of history for Starbucks. It’s that simple.” Starbucks’ very recent history has been challenged by Covid lockdowns in China, which is the company’s second-largest market by revenue. The company has about 6,000 stores there, Schultz said. The company is opening “one store every 10 hours in China,” he added. “The situation in China is opening up. China will be much larger than the U.S. when it’s all said and done.” (Jim Cramer’s Charitable Trust is long SBUX . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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Starbucks CEO Howard Schultz, left, with incoming CEO Laxman Narasimhan, Sept. 7, 2022.
Source: CNBC