Starbucks is set to resume union negotiations as it confronts issues at its stores

When Starbucks and its baristas union resume contract bargaining this week, workers may have renewed momentum at their backs — courtesy of the company’s own CEO.

The coffee giant last month found itself reporting an objectively challenging quarter. U.S. same-store sales fell 3% and traffic dropped 7%. As a result, the company cut its 2024 forecast.

CEO Laxman Narasimhan admitted Starbucks was seeing a more cautious consumer when it came to spending, but also mentioned the need to make improvements to stores as the company saw troubling trends. Starbucks reported rates of incomplete mobile app orders in the mid-teens and said occasional customers came in less.

Narasimhan, in prepared remarks to Wall Street analysts, cited some of the challenges that union workers have been highlighting in their bid for better working conditions.

“Specifically in our U.S. stores, we’re focused on creating a more stable environment for partners through investments in equipment innovation, process improvements, staffing, scheduling and waste reduction, all things our partners value and prioritize creating a more satisfying work environment in our stores while de-risking our business,” Narasimhan said on a call with analysts.

He added in an interview with CNBC’s “Squawk on the Street” that throughput has improved, and said the company’s action plan will continue to build on that momentum with improvements to stores and better communication of value.

“We have improved speed of service quarter over quarter. If you look at the processes that we are rolling out, particularly around peak, what we are finding is that we have opportunities to improve that even further with changes in processes and tools that we provide to partners at peak,” Narasimhan said.

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

The organizing efforts began nearly three years ago in Buffalo, New York, under then-CEO Kevin Johnson. At the time, Starbucks was a company long known for progressive benefits for workers.

But baristas, emboldened by the experience they had during the Covid-19 pandemic, pushed for changes in the company’s cafes. More than 430 unionized stores and two chief executives later, the two sides have made “significant progress” in contract bargaining, striking a more optimistic tone after a successful two-day session last month.

Starbucks and the union are meeting to continue working on the framework that will inform every single-store contract moving ahead.

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

“We heard Narasimhan make that statement after the earnings call that they’re aware that stores have experienced staffing issues,” said Eisen, who has been with the company for more than a decade and is among 150 delegates attending in-person bargaining sessions with Starbucks on behalf of the union.

“I think this is a new world right now to be able to say that the CEO has stepped up and said, ‘Look, we’ve got some problems, we know we’ve got some problems, we want to work towards fixing those problems,'” Eisen said. “And as a worker at a unionized location, with proposals on the table to help solve these issues, that’s exactly what I want to hear.”

In internal surveys and in bargaining committee meetings, union-represented partners consistently rank “staffing and scheduling” as their highest priority issue. The vast majority of represented partners report frequently working short-staffed, and a simple majority of partners report that they are getting scheduled for fewer hours than they want or need.

The union has also pushed for better pay and benefits.

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

Staffing improvements are likely to be even more important as Starbucks projects an increase in traffic and orders.

In July, Starbucks plans to open up its mobile order and pay app to nonrewards members in a bid to win back its occasional customer base. This will create the ability to target all customers with new products and promotions in an effort to grow traffic.

It is also due to introduce what it is calling the Siren System: new equipment and protocol to address customer ticket times. The Siren System includes a custom ice dispenser, milk-dispensing system and faster blenders to reduce steps for baristas and get drinks to customers faster. It will reach 1,000 stores in July.

“It’s a terrible feeling to be on that floor and to pull a sticker and to look at the time and then look up at the clock on the wall and realize, you’re already 8 minutes behind,” Eisen said of mobile orders.

“Eight minutes doesn’t sound like a lot. But when you’re producing 100 transactions per half hour … and you realize you’re probably backed up 20 drinks, it’s a bad feeling,” she said.

There has been another call for change at Starbucks stores that may carry weight at the negotiating table. Former Starbucks CEO Howard Schultz in a LinkedIn post after the company’s earnings report said management needs to spend more time with workers to understand ongoing challenges.

It was the third time he has publicly weighed in on Starbucks and its operations since leaving the company and its board last year. It was a notable shift in tone from when Schultz returned to the company in 2022 to respond to the union challenge, with a far more combative attitude.

Narasimhan was mentored by Schultz for six months before taking the helm at the company, and he spent time in stores with baristas, even earning his barista certification before becoming CEO in 2023.

“I have emphasized that the company’s fix needs to begin at home: U.S. operations are the primary reason for the company’s fall from grace,” Schultz said. “The stores require a maniacal focus on the customer experience, through the eyes of a merchant. The answer does not lie in data, but in the stores.”

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