Exclusive | Starbucks Global CEO Laxman Narasimhan breaks down 'Triple Shot Reinvention' strategy

Shereen Bhan: Welcome to the Global Dialogue. I'm Shereen Bhan and we're at a Starbucks cafe in Pune. If you're wondering why here – well the suspense is now being broken because we are joined by the Global CEO of Starbucks, Laxman Narasimhan, Puna boy. Thanks very much for joining us here on CNBC-TV18. And this is really a special homecoming for you, isn't it?

A: Oh, it is actually. Thank you for coming here. Thank you for coming to my hometown. Thank you for coming to my home store. The Koregaon park store is about 500 meters from where my mother taught as a primary school teacher and it's less than a kilometre from where I grew up. And so I've walked the streets so many times. It’s pretty much overwhelming and then you come in here, and it's amazing to see my hometown, my hometown partners, meet hometown customers, and I'm so glad you are able to come to our home.

Q: I've been enjoying watching you behind the counter playing a barista and you're not bad at it.

A: Thank you for saying that. I actually earned my Green Apron.

I had a trainer. She was pretty tough. She would say, hey, it's too much foam on latte, go make it again. I got that feedback today too, as you probably saw, but it's actually really good to know exactly how we do our things. So six months I trained, actually, in all the various aspects of the coffee business, I got a Green Apron, which is the first step. And two weeks ago, I got a Black Apron, because we've been working on knowledge all the way through. I have been working in stores half a day a month, because our life is in these stores. It's with these partners. It's why I work. And so it's important to keep that going and to stay really connected to the team.

Q: I want to understand from you. This is part of your immersion program. You've spent the last eight months at Starbucks, trying to settle into the role. But how do you cope with the baggage of expectations? We're talking about an iconic American institution, we're talking about an iconic American CEO or global CEO, Howard Schultz (former Starbucks CEO), who you replace, how do you cope with the baggage of expectations and the inevitable comparisons?

A: The first thing you've got to appreciate and acknowledge is the fact that Howard is iconic. The fact that he's a tremendous entrepreneur. And he's redefined the way the world drinks coffee. And you've got to pay respect to it. Coming of Asian origin, that's actually easy to do. And when I was first interviewed about this immersion program, and journalist asked me, how could you agree to a six-month immersion? I looked at her and I said, it's really interesting, the way you word that question is, how could you do this immersion program for six months? Or why was this immersion six months long? I said, if you were Asian, you might have asked the question differently, you would have said, why was this immersion program only six months long? There's one simple word that changes, in fact, the perspective that you have around why you do this. I learned a lot from Howard. But you also appreciate that I'm different. And if you start looking at the complementary skills that I bring, that's what I'm going to bring to the brand. I deeply appreciate the brand, I know what it stands for and it stands for human connection. It stands for ensuring that people have a place where they can belong, when they can bring joy, where the craft of coffee gives customers the results that they want. And we get the courage to keep innovating in the business. Those are our fundamental values.

So as we were doing this, Howard and I had a long conversation about the company and we said, we've built this company, it is now 51 years old. We think the headroom for this company is really quite large. It's time for us to re-found this company. And that's what my leadership team and I have done over the last year. We have re-founded the company. You go back to the mission of the company, the mission of the company Howard had was the mission of inspire and nurture the human spirit, one come, one person, one neighborhood at a time. Tremendous mission, but it was written before the iPhone. And as you look at what's going on with the way customers are evolving, my leadership team and I; we worked with thousands of partners around the world. And we wanted to do something that gave the power of this cup to the barista. Because really, that's where it happens. And so our mission celebrates the past and evolves the company of the future. And it is this with every cup, with every conversation, with every community, we nurture the limitless possibilities of human connection. So the barista when they hand the cup, they are having a conversation with you, either physically or digitally. The community is beyond just the neighborhood. What we're doing is we're essentially uncovering what the limitless possibilities are connected with each other. So the mission itself is different.

So I understand there's baggage, I understand there are comparisons. But we're now setting the company up with a complementary set of things that we could do to take the business where it is right now, celebrate the heritage, but evolve it for the next 50 years.

Q: You're talking about limitless possibilities and limitless opportunities. Let me ask you that in the context of where you see this business now growing, you put together a triple shot strategy for Starbucks, which involves cost savings, but it also involves accelerating your expansion plans around the world. What are you prioritizing today? And as you look at this world, in your words ‘with limitless possibilities’, what is the role that you see Starbucks play?

A: So first of all, as I said, this is an iconic brand. And it's a brand that is founded on this idea of human connection. It is a brand that is founded on this idea that even in a polarised world, you have the ability to create a third place -- a place where people can come and feel belonging and feel joy, and essentially advance the conversation forward, with the ability to converse, to connect. And so that is at the heart of what this company is. So given that company is there and given this business is founded on kindness and joy, it's an iconic brand that needs to be celebrated. So we're not a political organisation. We're not a government. So, we strongly are opposed to hate speech, we completely decry the weaponised speech that exists in many places. And there's all kinds of rumors of who we are and what we're about. But the fact is that, we strongly reject violence against the innocent. What we are about is we are about pro belonging, pro joy, pro kindness, that's what this brand is about. So given that is what the brand is about and we look at the world, I work in stores around the world, I could see society through the windows of our stores. And it's interesting, when you go to US and you see a more polarized society, you come to Europe, and you see a highly more multicultural, customer base, as well as partner base. I go to Japan, and I see older customers coming in with their even older parents in the afternoon to share coffee. You go to China, and you see this amazing ambition that the youth have. We as a brand play a real role – a role of providing the world's third place. To that end, we said this Triple Shot Reinvention was about; first, it's about elevating the brand. We've announced the Starbucks Art Prize, which is a $1 million prize a year for an artist who's cutting edge at 38,000, stores, walls inside the store, walls outside, elevate the brand, innovation products, huge amounts of potential there.

The second is about us strengthening and scaling digital; we are a very digital business, and we have the potential to make it even bigger in what we do, how we connect with our customers, but also how we reimagine the factory in the back while delivering the theater on the front.

So the third thing we have is truly global. And this is where India comes in too, we have a big leg in the US. We've of course grown several stores in China, but the rest of the world has huge potential for us. Even in markets like Western Europe, we have headroom. You look at markets like India, we're just getting started. So we will be truly global. Three out of four stores that we build over the next five years will be outside the US. Those three things are really important. And to that context, we need to obviously fund this. So efficiency helps us do it. It helps us build the capabilities that really reinforce this business.

And the last thing and perhaps the most important thing for me, is we have 460,000 partners around the world. These are partners hired locally, they hired by the local geographic partners that we have, here we have an amazing joint venture with Tatas. These are people from the community that we're working with. But how we ensure that we through the power of storytelling, through the power of amplifying what's really important, we reinvigorate a partner culture worldwide. It's amazing we don't really have a system of transporting or transposing our culture, but you go to Mexico or you go to Holland, or you go to Japan or you're coming into India, it actually feels very similar. So, that's what Triple Shot Reinvention is. And what it does is it gives us growth of 5% in the long term, double digit revenue growth and earnings growth in the 50% plus range. All that put together helps us in a creative financial result. while doing so, we meet the needs of all the stakeholders, we have partners, customers, the farmers of coffee, the community, as well as the environment.

Q: You know, let's talk about India since we are here. ₹1,000 crore in revenue, that's the joint ventures milestone that's been clocked over 390 stores today. What's the plan now as far as India is concerned, both in terms of store expansion, as well as where you see the business going?

A: Well, first of all, I'm really excited by India. And what is happening here. You and I just discussed this earlier, we have come to Pune and it looks so different. We see the investments we made on infrastructure, we see the consumer getting great strength, the country is poised for take-off. And our business has been built very systematically over the course of the last ten years, with a base of partners who are extremely strong. And a partner like Tata, where the values are entirely consistent. Chandra and I have known each other for years. And, it's very similar orientation to India, the potential of India and where we could go. What we've announced is the fact that we are going to be opening, if you look at last year, we have opened one store every five days, we're now moving to one store every three days. And we have a wonderful team leading the business. And I'm deeply supportive and appreciative all that they do. And when they told me one store in three days I said, that's amazing. Well done. What are we now doing for the other two days? And I think what this tells you a little bit is the ambitions for India.

Q: So what are you going to be doing for the other two days?

A: The team is on it. The team is working obviously on things to do. But what I appreciate very much as beverage and coffee score, and allow the coffee culture that we're building, food attaches the business that we have. And we will arrange a food products that attach the beverages that we have that are terrific. We're working on things that are accessible, the Picco price point, and the filter coffee. And so all that's just for India. But in addition to that what may not be entirely visible to you is the work we're doing behind the scenes. In Coorg, Tata and we have a joint venture; we work very much on farming, and how we improve the quality of the coffee crop. We have a joint venture with Tata Coffee on roasting here in India, it's very important to build a backend and to build the backend really well. And my hope and ambition is that we fundamentally scale up even further on the coffee we source from India. So if you look at the new launch, we're going to have early this year here in India, it's going to be the Starbucks Reserve Monsooned Malabar. That's a tremendous plan; I bragged it actually the other day, this is going to be in all US stores in the middle of the year.

So we're going to take India, what we make here, what we produce here, and also have a show up around the world. And it's our way of taking India to the world as well.

Q:  How much are you sourcing currently from India? And how much do we expect that to be over the next five years?

A: I think to me, what you can expect is that as we continue to work together, Tata and us on coffee, the quality of coffee from the farming, we bring in the techniques that we have mastered, by working with half a million farmers with whom we buy, we provide information to another million harvests, two million farmers of the 20 million worldwide, who actually get information practices from us. We're bringing a whole set of practices as well as here, including what we call the Cafe practices, which ensure the future of coffee all in the chain. And so we bring that in here. The idea very much is say, how do you make India even bigger for us? And clearly, India has a tea drinking culture too. So the things we do with tea around the world. So I'm really hopeful that what we can do is fundamentally change the equation about how we take India to the world through Starbucks.

Q: So what is that going to mean in terms of incremental investments here in India, whether it is to beef up your store plans, or it is to enhance procurement? What is it going to mean in terms of the kind of money that you are going to invest in India over the next few years?

A: We have a very long term view to investments and returns. And what we know we're doing is we're creating a third leg of the stool in our global markets. As far as India is particularly concerned, the team knows that the brand and how we deliver the brand is really very important. The values are super critical for us. And with that the team is essentially working on a plan continuing to build a plan we already have to ensure that we get the kind of returns the long term that we will get but with opportunities, we will invest and you can expect in India that we will invest.

Q: So where would you see India in the global pecking order when it comes to revenue contribution to Starbucks? I mean, the lion's share still is the US and China today. But what do you see over the next five to 10 years in terms of India's contribution with?

A: China's 10 are less than 10% of the overall revenues for us globally. The US is obviously a lion’s size of it, but we actually have a lot of other markets, about 86 countries, you have got to recognise the potential of the headroom we have in all of them as we build out this third leg of the stool. India is at about 400 stores, but we have 38,000 stores globally. Our plan is to get to 55,000 stores over the course of the next five years, with three out of the four stores being outside of the US, India will also have a big role in this.

I think the thing you have to think about here is as the coffee culture continues to grow, as the consumer environment here continues to change, and as we continue to do what we do in terms of shaping demand, you can expect us to be a big contributor for growth in time.

Q: Let us talk about demand and let us talk about the demand in the short to medium term, specifically, as far as the US is concerned. While I think it's clear now that we are not talking about a hard landing anymore, and the talk of recession is over, but what are you seeing in terms of consumer sentiment, in terms of discretionary spending, and what's the outlook over the short to medium term?

A: I think the US will go through this year, a transition year, as we sort of come out of COVID, and so this year is a transition year that will lead to more normalisation of the consumer environment in the US. As far as our demand goes, which I can speak to more specifically, if you look at our loyal customers, they continue to frequent us very often, they continue to trade out, they continue to customise what they do, we are very good about the strength of the brand with our loyal customers and I fully expect that as the environment normalises over time, we will continue to see growth in a market like the US for us.

We are under-penetrated in the US even though we have 16,000 stores and I think the opportunity for us to grow in the US too is high.

Q: When you talk about the theatre in the front and the and the stuff that goes on in the the factory of the backend and the digitisation that's helping keep the factory moving along what kind of spends do you expect on the digitisation front? And what is that going to translate into what are the changes that you are making both at the front as well as the backend, and the results that you are seeing on account of that already?

A: I think part of what I saw working in the stores is I actually got a very visceral feeling for what we were doing well, and what we could do better. We don't get it right all the time. We just don't I mean, we are, 40,000 to 60,000 humans, and there are mistakes that we make at times and things that we could do better. So if I look at the ability for us, for the factory at the back, as we think about the supply chain, and what you can do to drive productivity, how technology can actually enable us in doing that, we are already beginning a lot of work in that space.

In China, you already see us having made material progress in that and it is something we will do in the US and also in other markets. Technology plays a big, it plays enabler for us in farming, and how we think about actually grabbing crop productivity in a sustainable manner. It's about how we organise the supply chain, it's about how we get product to where it's needed. Technology plays a big role also in the theatre in the front term, how we connect with customers, how we give them an experience that is seamless. So there's work and investment going in both areas. And the best way to think of it is that we needed to take away money from things that don't create a lot of value and put a lot more money into things that could, very simply put.

Q: So where are you taking the money out of?

A: Well, for example, in the supply chain side, we see a lot of potential for us to be far better at what we do, how we buy, what we buy, how we flow, how we ensure products are available, the inventory that we have in various spaces, improvements that we can make there, that ease up money, and that helps us actually make investments, including areas like technology. But even in technology, there are things that we can do differently. There are savings that we can get in terms of how we actually take money from the run and put more money to innovate. And we are working through the architecture, the investments we make at the Apple air, how do we bring artificial intelligence (AI) into the equation. We have built an AI platform for the last five years, we call it Deep Brew, that actually powers a lot of what we do at Starbucks. And it's a, AI machine learning platform, with generative AI (Gen AI) coming in, that's going to get powered up even more. So I think we have the ability with technology to really support the growth ambitions of the business.

You saw us make an announcement of a partnership with Microsoft, a partnership with Apple for some of the Apple products that we use, as well as a partnership with Amazon for some of the payment systems that we have for the US. So I think those are things that we are using anyway but the thought very much is that technology can play a big enabler in how we make our factory at the back better, while really enabling the theatre at the front.

Q: You talked about the legacy of the past 50 years and you talked about how the brand is going to evolve. In terms of where you see the brand and its positioning, how much of that do you believe is likely to change given the dynamics that are changing in the marketplace? You have now got artisanal brands, you have got VC funding, a whole plethora of brands, including here in India. Where do you see Starbucks fitting and how do you see the brand positioning changing, if at all?

 A: First of all, the brand is, is iconic, because of the fact that what it stands for, is, in some ways timeless. When you stand for human connection, it's timeless and so there's different manifestation of how this brand can appear. We have established a reserve brand that actually plays at the higher end and provides a very different set of experiences.

Q: Is that going to be a priority in terms of growth and accelerating the expansion on that front?

A: I don't think it's a priority for growth per se, but it's clearly a priority for us, in terms of how we set the brand experiences that it provides. We have one Reserve store in India right now in Fort in Bombay, we are going to open a second next year. If you look at the US, we have the Roasteries, which is a destination for experiences that we provide. So beyond the brand, which is timeless positioning, clearly what we do with innovation, how we digitally connect with customers, how we ensure that we deliver a consistent experience worldwide, there's still so much headroom.

I understand that there will be others that come in, that may have a different proposition. But what I think about very much is how do we scale this and how do we do this at scale. In the 30,000, or 55,000 stores we have worldwide, if we did it more consistently, the opportunities are even more apparent to us.

Q: So what will be the growth regions that you are going to be focused on, of course, you talked about India as being one of the growth markets that you will invest a lot of your time and energy and money in. But outside of India, which are the markets that you're going to be focused on to drive the expansion and growth shooting?

A: You will be amazed, when you look at our brand, and you look at where it is there's headroom in every market. Everybody said Japan is a slow growing market, we have 2,800 stores in Japan, and the number of stores in Japan is going to increase even further, just because of what we have. We have some really beautifully crafted stores in Japan. And it does a phenomenal job in bringing the coffee culture into Japan. So Japan is a growth market in that sense, if you see what I am saying.

But the rest of the world we are underpenetrated, we underpenetrated in the rest of Europe. We have opportunities in the Middle East, and Africa, we are not even really present in many markets, Latin America, there is real headroom too. So everywhere you look, there's possibility. So what we're trying to do is ensure that we build the capabilities, we build a global mindset, we build a supply chain, we build the capabilities around store and store development, and we build 4,000 stores worldwide every year, every single store is designed by us. It's unique, it's different and it's important for it to be so, so we don't have a cookie cutter model to this. But in order to do that, we could also do this to scale the technology. So that's going to be the focus. So there's growth potential everywhere. We are building the capabilities to support that.

Q: In India, specifically, you talked about the joint venture with the Tatas and what you're intending to do more on the procurement side, more JVs, more partnerships, more collaboration here in India that you would explore and what has been the big learning from this particular joint venture?

A: I think if you look at Starbucks, one of the secret sauces, is how the culture has in some ways diffused globally, across all its stores. But it hasn't been done in the way that you normally think about it, hard edged and top down. Starbucks is a right brain company and because it's the right brain company, people relationships really matter at scale. And it's the reason why you see me spend more time in the front line in stores. In one of the things about Starbucks is unlike some of the other companies which are more left brained, when you go into a company that's more left brained, you walk off to other companies.

In a company like ours, which is right brained people come in and they tell you their story. And what's there is I am bringing my story into the company, now together, let's make something more powerful. It's actually quite unique. Now, when you think about that, and start saying, what could this really lead to? It can lead to massive growth. Now we have chosen geographic partners very carefully. And it has been driven by fit, values fit. We are partner in the Middle East, Al Shaya Group out of Kuwait, it is 25 years with them. Same thing with Latin America and Europe. Here too with the Tatas cultural fit really matters to us.

So when we create geographic partners, we do for the really long term, we are not in the process of interchanging every three years, we just don't do that. Now we have collaborations that we do with artists. If you look at Blackpink, which is a K-pop group across the Asia Pacific, great collaboration with them. We have one of Manish Malhotra that's coming out I think in the in the next couple of weeks here in India. And I think you will see us play more of those as we think about going into lifestyle, what we do, we did you know something in Milan with the Milan Fashion Show.

Q: You are likely to be much more of a lifestyle company going forward or much more of a lifestyle brand going for forward?

A: This brand, when you talk about human connection it's brand new that can actually appeal to a lot. And it really is a kindness joy driven brand. It's not driven by all this crap that you read on social media, the disinformation and all of that exists. It is genuinely built around this idea of human connection. So you can see us elevate the brand. And you can see where it goes, we just did a partnership with Oprah Winfrey, around the idea of The Color Purple, which we launched over Christmas. That's what this brand is about, we are trying to bring human connection to and we'll use that in a way through various interpretations of it. In terms of what the brand could be.

Q: I heard you ask your team here to give you advice. What do they have to say to you?

A: First of all, they all want me to work more with them, which is great, thank you and I intend to do that. And unlike that, they gave me some ideas around sizing, around what we could do to make our products more accessible. We have launched Picco, which is a size in India for the first time and actually, it's one that I think people can try our products and get into the brand, so to speak in a more accessible manner.

The other feedback around and this is really shows me the ambition of Young India. The ambition of Young India is remarkable, there are 40% of our Baristas are women. We have women only stores and when I look at the worker participation of women in India, it's really an opportunity. Just upstairs there's a banner in the office of the store manager, he told me what they were doing around women working part time housewives, you could come in and actually have this as a second career.

You just heard the story of the partner was a single mother with two children. I had this girl, woman partner in in Bombay Saina, who told me her story, her father died when she was in third standard, her mother died when she was the fourth standard. She was with her grandmother who died two years ago, she's living with her father's cousin sister in Bombay, while her younger sister was in the eighth grade eight standard is actually living with an uncle. And she's working with us, she is part time studying. She's going get a degree and once she gets a degree, I've told her, I want to see what she's going to plan with it. She's taking care of it, when you think about what I'm doing, and really the platform that this provides, there are 4,60,000 stories.

There's a woman called Diana in San Antonio, Texas, her father threw her out because of who she was, and what she wanted to be, and no connection and she works with us and she studies. We just graduated 1,000 graduates out of the Arizona state four-year degree program, I have 25,000 students in the US during their four-year program. We have a young woman here, who dropped out of college, and now she's at the Indira Gandhi National Open University (IGNOU) and I said you've got to complete what you do. So I think we have the ability with these 460,000 people to build a bridge to a better future. That's what I am about with a brand that is iconic, that is going to go new spaces with opportunities in the 86 countries that we are in that's what this is about. Over the course of the next many years.