Prediction: New Starbucks CEO’s turnaround plan will boost stock

After officially taking the helm at Starbucks (SBUX -0.71%) Earlier this month, new CEO Brian Niccol outlined his plans to help turn around the struggling cafe operator in an open letter to customers, employees and shareholders.

Nothing that Niccol presented was particularly groundbreaking, but the simplicity of the plan is what I predict will help Starbucks get back on track and boost its stock over the long term.

Back to its roots

In his open letter, Niccol said that under his leadership, Starbucks will focus on four main areas. His initial plan is to focus on his US business first and help turn things around.

The first area Niccol said Starbucks will focus on is empowering its baristas to take care of its customers. He said that includes giving them the right tools to consistently make great drinks while personally serving them.

He went on to say that the company needs to get the morning right by delivering high-quality food and beverages on time, every time. Third, he wants Starbucks to return to a community cafe by enhancing the customer experience. And ultimately, he wants Starbucks to come back and tell its story.

Ultimately, these four things are all meant to improve both the employee and customer experience. While Starbucks obviously sells coffee and food, it has also sold an experience for a long time. However, the experience side of his business has been lacking in recent years under his previous leadership.

This seems to stem from understaffed shops and overworked and unhappy baristas. Understaffed stores eliminate the personalized part of the experience as workers rush to fill orders as quickly as possible with little customer interaction. It also generally makes workers unhappy, which also negatively affects the customer experience.

This also created long wait times, which caused customer frustration. In recent quarters, Starbucks has noted that it has seen customers cancel online orders placed in the morning due to wait times.

In his letter, Niccol said the company will make investments in technology and its supply chain to help improve the employee and customer experience and improve its app and mobile ordering system. He will also spend time in stores and customer service centers during his first hundred days.

Although not directly mentioned, it wouldn’t be surprising if the company also needs to invest in more baristas, as technology alone probably won’t completely solve its problems. And if Niccol wants Starbucks to return to the coffee shop experience, it needs properly staffed stores. Equipment that helps speed up the beverage preparation process and better staff management solutions can also help, but the company still needs enough workers to provide that personalized experience.

After addressing its US issues first, Niccol said it will then look to improve international markets. China, Starbucks’ second largest market, is a priority. He said the company needs to capitalize on its strengths in the market and start figuring out the way to capture growth in the country.

Image source: Getty Images.

Is it time to buy the stock?

Niccol hit on most of the important points of what I think is needed to help fix Starbucks outside of investing in more baristas. Given that, along with his track record as CEO at Chipotle Mexican GrillI think his plan to fix the US business will work and that the stock will benefit nicely for years to come. Bringing back the Starbucks experience and fixing mobile ordering issues were the two most important things needed to help revive the company’s struggling US business.

China could be more difficult given the competitive dynamics in the country, but Niccol needs to fix the US business first. It also wouldn’t be surprising to see him divest from the China business in a big way Huh! trademarks made with Yum China.

Data on PE SBUX report (1 year ago) by YCharts.

While Starbucks shares have soared higher since Niccol’s hiring, at a forward price-to-earnings (P/E) ratio of 24 based on analysts’ estimates for next year, the stock is still trading below where it has often traded in the past. several years. Given that Starbucks now has a solid plan, I would be a buyer at current levels before signs of a recovery set in and raise this restaurant’s stock even higher.