Why tackling the union drive is a major task for incoming Starbucks CEO Laxman Narasimhan

September 25, 2022

This week, on October 1, Laxman Narasimhan starts as the incoming Chief Executive of Starbucks. Narasimhan, 55 years old, told employees he plans to spend the first six months “learning from Howard (Schultz),” according to CNBC. Schultz, 69, founder of Starbucks, has served three separate terms as the company’s CEO, most recently since April 2022.

Seattle, United States, based Starbucks mainly sells a variety of coffees, both hot and cold and in several combinations and price points, from more than 34,000 stores in 84 countries, including China, Italy, and India. These include more than 17,000 stores licensed to other operators, including 6,500 in the U.S. Analysts estimate the company’s 2022 revenues will be around $32 billion.  

Narasimhan plans to accompany Schultz and visit stores, coffee roasting plants, coffee farms and partners around the globe to learn about the company’s brand, operations, culture, as well as future growth and profitability plans. Narasimhan also hopes to pass the test required to be a barista, after 30 hours of training, earning one of the company’s green aprons. 

He is expected to formally take over as CEO next April, the first CEO from outside the company. Narasimhan is uniquely positioned to “lead the company forward with his partner-centered approach and demonstrated track record of building capabilities and driving growth in both mature and emerging markets,” Schultz said in a statement. Schultz, a major owner of Starbucks stock, will stay on the board of directors after Narasimhan replaces him as CEO, and serve in an ongoing advisory role to Narasimhan through 2023.

One of Narasimhan’s major tasks as the new CEO will be to try and halt the pro-union drive while simultaneously dealing with employees at stores in the U.S. who have voted to unionize. So far employees at more than 230 Starbucks stores have voted to join a union, seeking better pay, staffing levels, and working hours.

The impact of this on the company’s overall business may seem insignificant given that it operates more than 9,000 stores in the U.S. But the unionization drive has gained rapid momentum, having started less than a year ago, when workers at a store in Buffalo, New York, voted to join a union.

In response, according to news reports, Starbucks has actively campaigned against the union drive – employees at 45 stores voted against joining unions; closed some stores where the employees voted to join a union; fired more than 75 pro-union employees; denied new pay and other benefits to employees at pro-union stores; and filed lawsuits, including against the National Labor Relations Board (NLRB), the U.S. Government Agency that handles labor relations.

In August, a judge in Tennessee ruled in favor of the NLRB and required “Starbucks to reinstate seven unlawfully fired workers, rescind and expunge unlawful discipline issued to an employee…and cease and desist from unlawful activities.”

Starbucks’ stock has a market value of $97 billion, the second highest valued prepared food chain after McDonalds. Since December 2021, when the first store voted to unionize, Starbucks’s stock has dropped nearly a third while the S&P 500 Stock Index has fallen by roughly 22%.

Many Starbucks customers in the U.S. support employees in their unionization drive and are critical of worker firings and other management action. The U.S. is the largest market for Starbucks and, if employees at more stores in the country vote to join the union, it will likely impact the company’s revenue and profit growth.  

Starbucks was founded by Gerald Baldwin, a former English teacher, Gordon Bowker, a writer, and Zev Siegl, a history teacher. In their 20’s, and friends since their University of San Francisco days, they were passionate about the arts, fine food, good wine, and great coffee. They started Starbucks because they wanted Seattle to have access to the delicious dark-roasted coffee that they loved – but had to go out of town to find.

The three Starbucks founders at a store in Seattle

Investing $1,350 apiece and borrowing $5,000 from a bank, they took the name of a first mate from the classic tale, “Moby-Dick,” evoking the seafaring tradition of the early coffee traders. They opened the first store.in 1971, with Siegl scooping beans for customers. In the beginning, he was the only paid employee while the other two founders kept their day jobs. In 1987, Schultz, who worked for the company, bought the chain of six stores.

As Starbucks CEO, Narasimhan will receive an annual salary of $1.3 million and a bonus which could reach $2.6 million. He will also be eligible for stock options.

Since 2019, he has served as the CEO of Reckitt Benckiser, a British vendor of Lysol disinfectant, baby formula and other consumer products around the globe. The stock of Reckitt, which has a market value of $50 billion, has been roughly flat during the past three years under Narasimhan as CEO.

From 2012 to 2019, he held various senior roles at PepsiCo, including, Global Chief Commercial Officer, and CEO of the company’s food and beverage businesses in Latin America, Europe and Sub-Saharan Africa. Earlier, from 1993 to 2012, he was at the consulting firm McKinsey & Company, including as a director, focused on its consumer, retail and technology practices in the U.S., Asia and India.

Narasimhan grew up in Pune, India, and in 1982 graduated from Loyola High School, a private Catholic school run by the Jesuits. His siblings passed away when they were young and his father’s business of exporting mechanical parts to the U.S. ran into trouble. Speaking of his time in India, Narasimhan told The Sunday Times, London, “You learn resilience, you learn tolerance, you learn to find a way through.” These traits, combined with the career opportunities that the U.S. or Europe provides, he added, enables several Indians to succeed as CEOs of major global companies.

Narasimhan holds a degree in Mechanical Engineering from the College of Engineering, University of Pune. He has an MA in German and International Studies and an MBA from the University of Pennsylvania. He wakes up at 5 am to meditate and exercise, loves writing poetry and listens to Carnatic as well as rock music.

He and his wife, who is originally from Bombay, have two children and have lived in 24 homes during their 29 years of marriage. He uses the name “Laks” when ordering coffee from Starbucks to avoid misspellings, he told CNBC; his favorite drink is a doppio espresso macchiato with milk on the side.

In a statement, he said that he joined Starbucks due to its “commitment to uplift humanity through connection and compassion…building an unrivaled, globally admired brand that has transformed the way we connect over coffee.”

Earlier this month, Starbucks management told a gathering of investors that it is implementing a plan to improve its beverage offerings, enhance store design, introduce and expand the use of advanced digital tools, expand marketing to its existing customers and build more stores around the globe.  

As a result, from 2023 to 2025, the company expects annual revenues to rise 10% to 12% and earnings growth to grow 15% to 20%. The number of stores will grow to around 45,000 by the end of 2025, including doubling the number in China to about 9,000.   

Also, starting with its stores in the U.S., the plan includes offering additional benefits to employees, including the hours employees need; expanded digital tipping; enhanced sick pay; new savings and student loan management benefits; and additional mental health support.

Will these enhanced benefits to employees, whose implementation will be overseen by Narasimhan, halt the unionization drive at Starbucks’ stores in the U.S.?

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