Starbucks (SBUX 0.98%) continues its rebound from pandemic closures, and all signs point to more growth ahead for the global coffee purveyor. This is where companies sometimes get lazy; they've done the work to turn around, and now it's time to reap the rewards.
But the most successful companies know that trends change quickly, and anticipating them gives you a lead. That's why CEOs frequently tout their companies' agility, because it's far from a given for a huge entity with many moving parts.
Starbucks interim CEO Howard Schultz has been a master at this. After heading the company from 1987-2000, he returned for a second stint as CEO in 2008 when the company put out stress signals after not changing to meet demand during the Great Recession. He retired in 2017, but he came back for a third round in 2022 and has quickly identified how the company needs to reinvent itself again.
After he dangled a teaser in the first-quarter conference call at the beginning of the month, telling listeners that he "discovered an enduring, transformative new category and platform for the company, unlike anything [he] had ever experienced," Starbucks dropped the product launch this past week. Is this a real "transformation" for the company?
Don't try this at home
Starbucks announced the big reveal on Tuesday, Feb. 21, and it turned out to be ... olive oil. Starbucks calls its new line of beverages Oleato. There are five premium products, both hot and cold, and they'll roll out through Starbucks stores over the next few months.
Apparently, adding a spoonful of olive oil to your morning coffee just won't do it. Starbucks' beverage developers have created a precision method for adding the perfect olive oil to the right coffee blend. "The infusion is really important," said Amy Dilger, whose title is principal Starbucks beverage developer.
Is this the new Starbucks?
This new product line reminds me of RH's move into luxury experiences. Schultz launched the line at Milan Fashion Week at a celebrity-studded dinner, fashion video included. It looks like a new trend for companies to blur the line between the products they offer and the experience they provide.
Starbucks used all sorts of premium messaging to kick off the launch, with descriptions of preferred olive groves in Sicily, including the unique environment contexts, farming practices, and specific growth habitat, as well as the quality arabica coffee beans that are being used. As delicious as this might be, there's a lot of branding involved.
At the same time, Schultz noted several times that the idea for Starbucks originated on a trip to Italy in 1983, and he's sending himself the same way, with an idea inspired by a trip to Italy. Sentimental, yes; more than that? We'll see.
What's been going right
A lot has been going right for Starbucks lately, which isn't a new phenomenon. The coffee chain first captured market share by almost single-handedly creating its own market, which has now ballooned into a billion-dollar industry. Its next iteration involved becoming a "third place," where people could socialize outside of work or home. It has now moved into its next development phase, which homes in on the digital era with more convenient shopping options and beverage creation models.
The multi-pronged strategy starts with more varied digital ordering capabilities, moving into more digitally oriented store formats, including pickup-only stores, advancing to improved equipment for faster service. Launching a radically different beverage line fits into Starbucks' new pivot.
Schultz may be the right man for this latest transition, but he's handing the CEO reins to Laxman Narasimhan on April 1. Lax, as Schultz refers to him, has been "incoming CEO" since October, and he's been pretty quiet in his months getting to know Starbucks. Schultz is setting the stage for the next phase, and we'll get a taste of how that goes with a new person at the top before the next earnings report.
How does this impact investors?
Shareholders should always pay attention to new products and company announcements, especially if management sees it as the next big thing. At first glance, this shows us where the company is going as it reinvents itself. That's important to know as a shareholder or if considering buying stock. But investors can think confidently about Starbucks' opportunities even without any major changes.
Mostly, I see this as a positive move because it tells investors that it's ready to think out of the box and risk trying something a little daring. Circling back to the idea that no successful company rests on its laurels, it tells us that despite its size and age, Starbucks is focused on innovation and improvement. Whatever the results of the rollout, I give Starbucks a thumbs-up for elevating its game.
