Starbucks’ new CEO, Brian Niccol, has unveiled the first steps of his plan to reverse the java hut’s fading fortunes. With a 6% drop in same-store sales in Q3 and a 10% drop in the number of transactions, Niccol says he’s going to focus on the customer experience, bringing back ceramic mugs for patrons who like to linger, and giving baristas back Sharpies to write on cups. “Was that a two-shot venti latte, Nicholas?”
Part of that plan is pulling the plug on stay-at-home workers. Niccol has issued a mandatory “Return to Office” order. Starting in January, corporate staff must come into the office at least three days a week. If they don’t, they’ll face consequences “up to, and including, separation,” according to an internal memo seen by Bloomberg News. Last month, Niccol told employees they should work wherever they need to to get the job done, but that that place was probably the office. Starbucks has about 3,500 corporate employees. Last year, dozens of Starbucks corporate employees signed an open letter protesting the company’s return-to-office mandate and its alleged union-busting. But Niccol is apparently having none of that. On the plus side, there will be no mandatory Tuesdays. Each team can pick its three days. No word on whether taking your laptop to a nearby Starbucks coffee shop counts as RTO.
The move is part of a broader RTO trend. Last month Amazon ordered employees back to the office five days a week; Dell has told employees who chose to work from home they wouldn’t be eligible for promotion; and Wall Street banks have been enforcing four-day-a-week policies. Kastle Systems, which runs those gates that office workers use to badge in, says office occupancy is still in the low 60% on most Tuesdays. New York City’s subways report that ridership is up on weekdays, to about 4.3 million paid riders, but still at only 75% of pre-pandemic levels.
Niccol has his own RTO issues. His $100 million-plus contract lets him remain living with his family in Newport Beach, California, and provides a corporate jet for him to make the 2,000-mile round trip to the Seattle HQ several times a week.
Meanwhile, the Chinese coffee chain that now outsells Starbucks in China, Luckin Coffee, is planning to enter the U.S. market next year, building out its supply chain and customizing its technology for the U.S., The Financial Times reports. Luckin was booted from the Nasdaq in 2000 after the SEC found it was cooking books as well as beans, and had fabricated $300 million in sales. Luckin claims 20,000 outlets in China, where Starbucks has just over 7,300.
Watch Big Business This Week on Cheddar—and YouTube!
Elon’s World
What was Elon talking about with Vladimir Putin? NASA administrator Bill Nelson wants to know, and he’s called for a full-on investigation after The Wall Street Journal reported Thursday that Musk and Putin have been in regular contact since 2022. The Journal said the discussions had been confirmed by U.S., European, and Russian officials, and said they “touch on personal topics, business and geopolitical tensions between Putin and the world’s richest man.” The Journal reported that Putin asked Musk not to activate Starlink satellite internet service over Taiwan “as a favor” to Chinese leader Xi Jinping. • The Washington Post discovered that while Musk was in the U.S. on a student visa in the 1990s, he was working illegally, and a major investor in Musk startup Zip2 told him to straighten out the visa issues. It’s not clear when Musk finally cleared up his immigration status. In a 2005 interview, Musk’s brother Kimball said the two were “illegal immigrants” when they started their company. • Just ahead of his appearance at Trump’s Madison Square Garden rally, where Musk pledged to cut $2 trillion in federal spending (about a third of FY 2024′s $6.75 trillion budget), he conceded his plan was gonna hurt: “We have to reduce spending to live within our means,” Musk said in a Town Hall on X. “And, you know, that necessarily involves some temporary hardship, but it will ensure long-term prosperity.” • A Musk-funded PAC, Building America’s Future, is bankrolling fake Harris campaign ads that misstate the Veep’s position on issues including expanding free healthcare to undocumented immigrants, and Musk’s $1 million America super PAC giveaway has drawn a lawsuit from Philadelphia’s district attorney for violating election laws — it’s seen as paying people to register to vote. • Musk told a town hall on X last weekend that a Trump presidency would help him get SpaceX’s starships to Mars: “I feel more optimistic about it with a Trump White House than a non-Trump White House because the biggest impediment in progress that we’re experiencing is overregulation.” • Even as EV sales rose 2% in California, Tesla’s sales there fell 3.5% in Q3 and are down 12.6% for the first nine months of the year, according to the California New Car Dealers Association. It’s the third straight quarter of Tesla sales declines in America’s largest EV market. • As Musk seeks to raise billions to fund his own AI company, he attacked “woke” AI models like OpenAI’s ChatGPT, for their political correctness. “A lot of the AIs that are being trained in the San Francisco Bay Area, they take on the philosophy of people around them,” Musk said at the Future Investment Initiative, a Saudi government-backed conference in Riyadh. “So you have a woke, nihilistic—in my opinion—philosophy that is being built into these AIs.” • Employees at SpaceX, Tesla, and X are donating to Democrats at four times the rate they’re giving to GOP candidates. Semafor crunched the numbers: $410,000 in individual contributions to the Dems, and $99,400 to Republicans. Meanwhile, Musk has pumped $75 million into his Trump-supporting America super PAC. • The roller-coaster ride of Trump’s Truth Social and the continuing writedowns by investors in Musk’s X briefly made Truth Social the more valuable company, at about $10 billion versus X’s $9.4 billion on Tuesday, when shares of Truth parent Trump Media & Technology Group Corp. hit $55. By Thursday morning they’d plunged as low as $34, leaving it worth just $6.7 billion. • Musk says he’s not building a compound in Austin, Texas, for his 11 children and their three mothers, despite a well-sourced report in the New York Times that he’d acquired a 14,000-square-foot Tuscan villa and adjoining land there for former pop star Grimes, ex-Bloomberg employee Shivon Zilis, and his first wife, Justine.
Get Big Business This Week in your inbox every week—and read it before everybody else! Sign up today.
Comcast-Offs
What’s a cable company to do to survive when everyone is cutting the cord? Sell off Rachel Maddow and the Real Housewives. That’s what Comcast’s chairman and CEO, Brian Roberts, plans to do with his company’s cable networks, as he tries to keep the media conglomerate and NBC parent ahead of the yield curve.
Comcast is considering spinning off its cable networks into a separate company, and partnering with other content producers on its streaming platforms, including Peacock. The move comes as the media businesses drove a jump in Q3 earnings.
“We’ve got a very strong hand,” Roberts’ deputy, Comcast president Mike Cavanagh, said on an earnings call. “There may be some smart things to do and we want to study that.”
Years of cord-cutting by cable subscribers have raised fears among cable owners that their lucrative franchises may eventually run dry. Comcast’s plan is to create a cable network company that would own such channels as MSNBC, CNBC, Bravo, USA and Syfy. NBC’s broadcast network, the NBC Universal film studios and production unit, the Peacock streaming channel that hosts NBC’s productions, and the Universal theme parks unit would stay in the old Comcast. The new business would go to the existing shareholders in a stock swap.
Other media companies have been writing down the value of their cable businesses this year: Warner Brothers Discovery by $9.1 billion and Paramount by $6 billion. For most media companies the cable networks still remain profitable because of long-term carriage contracts with cable providers. But Comcast plays both ends of that stick, and its cable customers keep cutting that cord. Some 2.1 million cable customers opted out in the past 12 months, a 14.5% drop to 12.8 million subscribers. That helped send net income falling 10.3% in the third quarter from a year earlier, even as the Paris Olympics helped boost revenue 6.5% in the quarter to $32.1 billion.
The Usual Suspects
- Spiritual Decline: As it waits to see whether it will finally tie the knot with Frontier Airlines, Spirit Airlines said it will furlough 330 pilots at the end of January, and downgrade 120 captains to first officer. It furloughed 186 pilots last month. It’s also selling 23 older Airbus planes for $519 million. A planned $3.8 billion merger with JetBlue collapsed amid antitrust scrutiny earlier this year, and Spirit shares are down 85% year-to-date. It’s facing a December deadline to refinance $1.1 billion in debt.
- Metamorphosis: Facebook parent Meta’s profits were up 35% in Q3 over the same period last year, but news that the company will keep spending heavily on AI sent its shares down 3% for the day. The total number of people using Meta’s apps each day rose 5% to 3.29 billion. CEO Mark Zuckerberg called AI “a very, very large opportunity,” while speaking to investors and analysts on a call after the earnings announcement. “I think we’re going to add a whole new category of content which is AI-generated or AI-summarized content, or existing content pulled together by AI in some way,” Zuckerberg said. “And I think that that’s gonna be very exciting for Facebook and Instagram and maybe Threads, or other kinds of feed experiences over time.”
- Artificial Growth for Microsoft and Alphabet: AI is driving the growth of cloud computing services offered by Google parent Alphabet and Microsoft, with Microsoft cloud revenue up 22% in Q3 over last year, to $38.9 billion, with most of that from Azure, the corporate platform that grew 33%. Google’s cloud revenue for the quarter rose 34% to $11.3 billion. “AI-driven transformation is changing work, work artifacts, and workflow across every role, function, and business process,” Microsoft CEO Satya Nadella said in a statement. The news did little for share prices, though, as Azure predicted growth of only 31% to 32%, down a point or two. Microsoft shares fell 4% on the news. Google’s shares rose 3%.
- Bacterial Backlash? Not yet, says McDonald’s, and maybe never. The September Quarter Pounder E. coli outbreak in McDonald’s Midwest restaurants, which sickened dozens of people and left at least one dead, didn’t have a “material” effect on the burger empire’s earnings, CFO Ian Borden told investors on an earnings call Tuesday. But, he added, rebuilding the brand’s image of safety could be a challenge. If those two statements don’t seem to add up, that may be because the outbreak occurred just before the end of the third quarter, and since then, daily U.S. sales have fallen and fewer customers are visiting their local burger joint, Borden said. Analyst Jeff Farmer, with Gordon Haskett Research Advisors, said in a research note that foot traffic at McDonald’s in the United States was down 9.5% from last year’s levels at the end of last week, and states with the most E. coli cases had the biggest declines.
- Boeing’s Big Share Sale: As its 33,000 machinists continue their strike—now focused on securing the return of their old pensions—Boeing is running out of cash. The aerospace giant on Monday began raising $19 billion by issuing new stock, after reporting a $6.1 billion loss in the last quarter. With $58 billion in debt, and manufacturing at a standstill for its core passenger jet business, Boeing is facing the threat of a downgrade to junk on its $58 billion in outstanding debt. Boeing said in a regulatory filing that it planned to raise as much as $25 billion in stock and bond sales, and arrange a $10 billion credit facility with a consortium of banks. Boeing’s shares are down more than 40% this year.
The Short Stack
- The Economy Is Looking Up: Consumer spending is up, and new unemployment claims are down to their lowest level since May, showcasing a strong economy ahead of next week’s election. The number of Americans filing new applications for unemployment benefits fell to a five-month low last week and consumer spending grew by more than expected in September. Inflation is trending downward and labor costs posted their smallest gain in more than three years, according to a trove of government data released Thursday. That keeps the Fed on track to cut interest rates next week and again in December, Ryan Sweet, chief economist at Oxford Economics, told Reuters.
- All That Glitters Is Gold: Fears of global disruption with war in Ukraine and the Middle East and a possible conflict over Taiwan have pushed the price of gold up 35% this year, to more than $2,700 an ounce. But some of that demand may be coming from that old FOMO, fear of missing out, the World Gold Council said.
- Tidal Waves Goodbye? Jack Dorsey’s music-streaming service Tidal is laying off about 100 people, ditching its entire marketing and product management departments to focus on engineering, which might also be shrunk over the next few weeks. In a note to staff seen by Fortune, Dorsey wrote that Tidal needs to operate “like a startup again,” with each department operating with a “much smaller team.” Tidal, which promises higher fidelity than rival streaming services, has struggled to attract users in the face of competition from industry giants like Spotify and Apple Music.
- Way Mo’ Money: Alphabet’s self-driving car unit, Waymo, has raised $5.6 billion from investors to grow its fleet of autonomous taxis and expand into new cities. Waymo’s taxis are giving 100,000 rides a week in San Francisco, Phoenix, and Los Angeles, and will be serving Austin and Atlanta by 2025 in a partnership with Uber. Waymo is planning to use Hyundai cars and has started testing an autonomous vehicle made by China’s Zeekr.
Peter S. Green is a veteran reporter and editor who has spent more than two decades covering business and finance from Eastern Europe to New York City, and has worked for Bloomberg News, The New York Post, The New York Times and The Messenger. He lives in New York City and is always looking for the next big story.
