this video was brought to you by Brilliant. Starbucks has had a tough few years. The company is now on its fourth CEO in less than four years and is also struggling with the steepest decline in revenue in at least 15 years, excluding the pandemic. So, in this video, we're going to take a look at how Starbucks became the behemoth it is today, why ridiculously complicated orders might be the root of its problems, and whether this turmoil might force former chair and CEO Howard Schultz to return once again. [Music] Let's start with a little bit of Starbucks history because it's a pretty great story. Starbucks was founded way back in 1971 as a tiny shop in Seattle that didn't actually make coffee but just sold freshly roasted beans. Trendy locals loved the fancy beans, and despite a slight downturn after coffee prices spiked in 1975, Starbucks quickly expanded across the city. In 1981, their success provoked intrigue from the general manager of their filter supplier, a guy called Howard Schultz, who decided

to pay a visit to their flagship store in Seattle's Pike Place Market at the time weak drip coffee was the default in America but Starbucks was selling beans and Brewing machines that made coffee closer to European style espressos. The coffee schz had on his visit was the strongest he'd ever tasted and he became immediately interested in the business. Schul tried to convince the founders that Starbucks should be expanded but they weren't entirely convinced and in 1982 they actually turned Schultz down when he asked for a job. Schultz eventually persuaded them and later that year he was hired. In 1983 after a work trip to Italy Schultz decided that Starbucks should focus more on selling coffee by the cop in store rather than beans that you brw at home. Schultz also introduced lattes to the star menu which almost no other American brand was selling at the time. It took a year for him to convince the other Founders but when they opened their first Espresso Bar in 1984 it was a huge success.

nonetheless, reoccurring tensions between Schultz and the other Founders over the extent to which they should focus on cups rather than beans meant that in late 1985, Schultz quit to found his own coffee company called Ilale, Italian for the daily offering brewed coffee made from Starbucks Bean. That's so cheeky. Elj Al was a massive success, and in 1987, they were able to buy out Starbucks, taking their total number of stores to nine. This is when, under Schultz's Direction, Starbucks really took off. By the next year, there were 33 stores. In 1989, there were 55, and in 1990, there were 84. Five years later, though, there were 677 Starbucks across North America, and by the turn of the Millennium, there were 3,51 Starbucks spread across the world. During this time, Schultz developed a reputation as a progressive corporate leader, advocating for higher minimum wages and generous health care benefits, and would later use the company's clout to promote fair trade policies. In 2000s, however

Schultz stepped down as CEO, handing over the reins to COO Orin Smith. Smith was also relatively successful, but he retired in 2005 and handed things over to Jim Donald, who tried to accelerate Starbucks's global expansion. Donald's strategy was a failure, though, and Starbucks was squeezed by cheaper alternatives like McDonald's and Dunkin' Donuts. And things got worse by late 2007 as the beginning of the financial crisis began to bite, and by November, Starbucks's stock had fallen by 50%. Schultz, who had been acting as a sort of backseat CEO for the past few years, decided to finally return in early 2008. He focused his efforts on reestablishing Starbucks as a premium product worth paying a little bit extra for, while decelerating the expansion worldwide and closing down unprofitable stores. While sales continued to decline during the financial crisis in the early 2010s, Starbucks returned to growth, with its market value rising from about $5 billion in 2008 to nearly $100 billion.

by 2019, and Starbucks now has over 37,000 stores worldwide, second only to McDonald's. Starbucks' success during this time was down to a whole load of things, but notable mentions include the launch of a series of new products like the Frappuccino, a lucrative expansion into China, which now has over 6,000 Starbucks stores, and the success of the Starbucks app. In 2017, Schultz resigned as CEO and handed over the reins to then COO Kevin Johnson. Johnson doubled down on China, which originally looked like a successful strategy, and Starbucks's annual sales and market cap rose steadily until the pandemic. Unsurprisingly, the pandemic was a tough period for Starbucks, especially because of the draconian lockdowns in China. In 2022, Johnson suddenly resigned. Schultz then returned as interim CEO once again before handing over to Laxman Narasimhan in March 2023. Narasimhan broadly followed the same expansion plan laid out by Schultz in late 2022 when he was effectively

shadowing Schultz, which focused on global expansion and bringing more people on the Starbucks app and reward program. Unfortunately, this isn't really how things panned out. After a moderate recovery post-pandemic, sales declined in the first two quarters of this year, with the biggest fall since 2008, excluding the pandemic. Despite the average order costing 4% more, Starbucks's stock duly fell by almost 30%, and earlier this month, the CEO was replaced once again, this time by Brian Nicholl, former CEO of Chipotle, after just a year in the job. So, what actually went wrong for Starbucks? Well, some of this is just due to inflation, which has pushed consumers towards cheaper alternatives. Some of it is also down to weak sales in China, where it's lost out to upstart Chinese coffee chains like Luckin Coffee, which has now become the nation's top coffee retailer. And some of it's also got to do with the ongoing boycott from pro-Palestinian activists. Although it's worth saying that multiple studies suggest that the impact of boycotts are

usually overstated by the media, but perhaps the main issue is the ever-increasing complexity of a Starbucks order. There are now literally nearly 4,400 million potential variations of a Starbucks latte alone. All these various editions were originally brought in because they're good for business. Starbucks charges extra for them, and they bring in more than a billion dollars a year. However, the complexity of these orders, combined with a fall in staff numbers, has made it harder for baristas to connect with customers, which used to be one of Schultz's main ambitions, and has also massively increased wait times. To cope with the increasing complexity of orders, Starbucks began to encourage people to order via the app ahead of time. But while this has sort of worked, and so far the size and quantity of in-app orders has increased, it's also shifted Starbucks away from the Italian-style cafes that Schultz originally imagined towards more of a glorified takeaway. 34% of orders today are drive-thru, mobile, or delivery, which makes it harder for

Starbucks to convince customers that the Starbucks experience is premium and therefore worth paying for, and means that Starbucks is now sitting on a whole load of expensive real estate that doesn't even really get used. Clearly, turning this enormous ship around will be a tall order for Nickl, and if he doesn't get results relatively soon, he'll have to be on the lookout for yet another Schultz comeback. Understanding these sorts of issues is really important but also difficult, and that's why TLDR is here to help you. Unfortunately, though, the world's only getting more complex, especially when it comes to things like Tech and AI, and I'm not qualified to teach you about that. But luckily, Brilliant is where you learn by doing, with thousands of interactive lessons in maths, data analysis, programming, and AI. In fact, Brilliant is a learning platform designed to be uniquely effective. Their first principles approach helps you to build understanding from the ground up. Each lesson is filled with hands-on problem-solving that lets you play with concepts, a method proven to be six times

more effective than watching lecture videos. For instance, if you did want to learn more about the increasingly important world of tech, then you might want to check out their How Technology Works courses. They run you through everything from how computer memory works to how exactly a GPS can pinpoint your location, or why some online videos buffer and how compression enables modern streaming. And although I did throw myself under the bus earlier and I'm not qualified to teach you about that, I do have a computer science degree and I can tell you that these courses aren't just high quality, they're also far more interesting than the lectures I sat through. To try everything Brilliant has to offer for free for a full 30 days, visit brilliant.org/slodr or click the link in the description. That way, you'll get 20% off an annual premium subscription and they'll know you came for us.

What’s Gone Wrong at Starbucks?

What’s Gone Wrong at Starbucks?

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