Starbucks chief Howard Schultz signaled another step back from day-to-day operations, announcing he will hand the CEO post over in April to Kevin Johnson, Starbucks’ president and chief operating officer.
In an unsurprising but still symbolically significant move, Starbucks chief Howard Schultz announced Thursday he will be stepping aside in April as CEO of the company he built into a global coffee empire.
Taking over the reins will be Kevin Johnson, Starbucks’ president and chief operating officer, who has led much of the day-to-day operations since July, when the company said Schultz would be concentrating his efforts on long-term global strategy and innovation.
With his title upgraded to executive chairman, Schultz, 63, will focus on building the company’s more premium businesses. He’ll be in charge of design and development of the company’s showpiece high-end Roasteries around the world, as well as expansion of the Starbucks Reserve retail stores, which sell and brew the company’s small-lot premium coffees, Seattle-based Starbucks said in a statement.
Schultz, who in 1987 launched Starbucks on its expansion into what is now a worldwide coffee chain of 25,000 stores in 75 countries, will also be in charge of the company’s social impact initiatives, which include employing veterans and battling homelessness.
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Johnson has been president and chief operating officer since March 2015, and runs the company’s global operating businesses. The former Juniper Networks CEO and Microsoft executive was named Starbucks COO after Troy Alstead, seen as a potential successor to Schultz, took a yearlong leave in 2015 and then decided not to return. The longtime tech executive has served on Starbuck’s board since 2009 and will continue to do so.
The new titles formalize a role change that had been in the works since spring and has been largely in effect since July. No other significant leadership changes are planned, Schultz said in a conference call Thursday with Wall Street analysts.
The business now is at a different stage than when Schultz was building it into “the global powerhouse it is today,” said Neil Saunders, managing director of retail research firm Conlumino. “As a more mature entity, the future opportunities are less about expansion and more about careful operational management to generate incremental growth and drive efficiencies.
“Schultz has the capability to do this, but it is probably not what excites him: He’s a business builder and an innovator.”
For Schultz, heading the higher-end Reserve part of Starbucks’ business is “getting back to what he likes and is good at,” Saunders said.
It’s also likely needed in order to keep company profits growing.
Despite Starbucks’ traditional stores seeing sales growth, there’s a limit to how much more growth can be expected.
“Starbucks is a solid business and a respected brand, but much of the low-hanging fruit has been picked and there are challenges arising from the fact growth will be slower and costs, [such as wages and commodities] are rising,” Saunders said. “Add the political uncertainty into the mix and it’s clear that Starbucks will need to work much harder just to stand still over the next few years.”
That’s why the company has been focusing on growing its premium-end business, where so-called “third wave” coffee shops, including Stumptown in Portland and Intelligentsia in Chicago, have garnered much of the buzz among coffee connoisseurs.
Starbucks opened its first Reserve Roastery and Tasting Room in Seattle in December 2014: an expansive, 15,000-square-foot showplace where the company’s Reserve coffee beans — its priciest, small-lot beans — are roasted, and various ways of preparing coffee, including pour-over and siphon, are used.
It plans to open at least 20 Roasteries around the world, with six by the end of 2019.
The company also plans to open 1,000 or more Reserve stores — sized somewhere between the large Roasteries and the smaller traditional core stores — that would serve only its small-lot premium coffees using pour-over and other such brewing methods. (Starbucks already has about 2,000 core stores around the world that serve Reserve drinks in addition to the company’s traditional core menu.)
The biggest risk from expanding the premium-end stores is cannibalization of existing Starbucks stores, Saunders said, though there’s also the possibility that the business could be spun off or sold if it’s successful.
Johnson is seen as a good operational leader with a wealth of tech leadership experience, including 16 years at Microsoft during which he led the Windows division, and five years as CEO of Juniper Networks.
That’s crucial as the company has been developing its digital platform, using its mobile app and features such as mobile order and pay, and its loyalty program, to fuel app usage and purchases. Mobile payments now account for 25 percent of its U.S. transactions, up from 20 percent a year ago.
Schultz has stepped aside as CEO before. The last time, in 2000, the company didn’t fare so well and he returned to the position in 2008, closing a multitude of stores in the U.S. while accelerating international growth. He sought to reassure investors Thursday that “the differences between then and now couldn’t be greater.”
The country was going through a recession then, he said, and “the management team at that time — all very good people — just did not have the capability or experience to navigate through that difficult period.”
The management team now, he said, “is the strongest management team in our history.”
Nevertheless, Starbucks shares fell about 3 percent in after-hours trading following the announcement.
Still, several Wall Street analysts said the transition should not affect the company’s performance.
“The timing is a little sooner than we would’ve thought,” said Tuna Amobi, an analyst with CFRA Research. But “the handwriting’s been on the wall.”
The impact should not be large, given that Schultz will still be engaged with the company and Johnson has been nurtured to take over, Amobi said.
Several analysts cited the value of Johnson’s tech industry background to Starbucks’ digital efforts.
That experience “positions him well to ensure Starbuck’s mobile and digital initiatives — key to Starbucks’ long-term success, in our view — will remain a primary focus of the company,” Bonnie Herzog, an analyst with Wells Fargo Securities, wrote in a research note.