Starbucks names consumer industry veteran Laxman Narasimhan as chief executive

He will be paid $1.3m in annual base salary

Laxman Narasimhan will work closely with longtime leader Howard Schultz. Photo: Reckitt Benckiser
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Starbucks named Laxman Narasimhan, chief executive of Reckitt Benckiser Group, as its next chief executive, choosing a consumer industry veteran to build on the new path charted in the interim tenure of Howard Schultz.

Mr Narasimhan, 55, will join the coffee company on October 1 while longtime leader Mr Schultz, 69, stays at the helm.

The new chief executive will take over fully on April 1 and will join the board, on which Mr Schultz also intends to serve.

Before his stint at Reckitt Benckiser, Mr Narasimhan was an executive at global beverage company PepsiCo, which is a Starbucks partner for ready-to-drink products, and also worked at consulting firm McKinsey & Co.

He faces a growing union push, along with struggling sales in China, one of the chain’s key areas for growth.

Meanwhile, Mr Narasimhan will be working closely with founder Mr Schultz, who is known as a hands-on leader.

How that dynamic will play out in practice, with Mr Schultz serving indefinitely as an adviser to Mr Narasimhan, is an open question.

New corporate leaders at times have struggled when their larger-than-life predecessors have stayed on the scene, as with the fitful period that Walt Disney chief executive Bob Chapek faced when Bob Iger stayed on as executive chairman.

“It seems like Howard’s going to continue to be very, very much involved, based on the language in the release,” said BTIG analyst Peter Saleh. “My guess is that bigger-picture operating decisions, menu stuff — I don’t know — it feels like this is still Howard’s show, at least for a while.”

Mr Saleh said he found it strange that Starbucks had moved to eliminate the role of chief operating officer, to be held by John Culver until October 3, “but they brought in a CEO with no restaurant experience.”

Cowen analyst Andrew Charles said he believed Mr Schultz understands that the new chief executive would “want to put some spin and do things differently. Starbucks is his baby, and he wants to make sure there’s someone there who is capable and strong”.

Starbucks shares were up 0.5 per cent after the close of trading at 7.23pm in New York. Through the close on Thursday, the stock had lost 27 per cent this year, more than the 17 per cent decline of the S&P 500 Index.

Howard Schultz returned to Starbucks in April as the company’s interim chief executive on a salary of $1. AP

Schultz’s shake-up

Since coming back to the helm in April, Mr Schultz has upended Starbucks by restructuring management and introducing a plan to redesign the company’s thousands of cafes for both customers and employees.

The details of the plan have yet to be announced, with specifics expected during the company’s investor meeting on September 13.

While the company has suspended guidance for the remainder of the 2022 fiscal year, its latest earnings show that diners are willing to keep spending in the key growth market of the US.

Comparable sales in the US jumped 9 per cent in the third quarter, and the company is trying to serve diners their lattes and cappuccinos faster with improved technology.

That strong performance — along with higher menu prices — has helped to offset the sluggishness in China, where the 34,900-store chain has about 5,700 locations.

The company said its recovery there would be non-linear, despite the recent reopening of some of its locations in Shanghai. Companies in China have been hit hard by periodic shutdowns meant to shelter the nation from the Covid pandemic.

The chain has hired a record number of employees in the US so far this fiscal year, and is trying to convince them that they will be better off without a union.

Starbucks also is investing in worker training, new equipment and other operational changes to make jobs easier on its baristas. The moves, along with pay increases, total $1 billion, the company has said.

The chain has raised pay to an average of $17 an hour across the US as of the beginning of August while also bumping compensation further for managers and more tenured staff.

But that has not been enough to stop the union push so far, which has built across the US with more than 230 stores voting to unionise with Workers United.

“We are hopeful that Mr Narasimhan will end Starbucks’s scorched-earth, union-busting campaign and work with all Starbucks partners to make Starbucks a better company and better place to work,” said Michelle Eisen, a barista in Buffalo, New York, on behalf of Starbucks Workers United.

Mr Narasimhan appears poised to travel around the world to become familiar with the business, He will use the lengthy transition period to become “fully immersed in the company, spending time with Schultz and the management team, partners and customers” and getting up-to-date on its strategy, the company said.

He will also visit manufacturing plants and coffee farms, and connect with workers and business partners.

Mr Narasimhan will be paid $1.3 million in annual base salary, according to a regulatory filing. He will also receive a $1.6m cash signing bonus and a replacement equity grant with a target value of $9.25m to make up for incentives that he is forfeiting by leaving Reckitt.

Starting in the 2023 fiscal year, he will be eligible for annual equity awards worth as much as $13.6m.

Reckitt shares fell 5.2 per cent in London after the company announced earlier on Thursday that Mr Narasimhan would depart at the end of the month, saying he was pursuing an opportunity in the US.

The move was seen as a surprise for an executive who only joined in 2019 and was making headway in restructuring the company.

He was unwinding the missteps of former chief Rakesh Kapoor, most notably the high-priced takeover of Enfamil infant formula maker Mead Johnson.

Updated: September 02, 2022, 6:55 AM
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