Starbucks' Schultz Handing Reins to Lieutenant Kevin Johnson

By Publications Checkout
Starbucks' Schultz Handing Reins to Lieutenant Kevin Johnson

Starbucks’s Howard Schultz, the outspoken coffee magnate who built a restaurant empire during two terms as chief executive officer, will hand the reins to his top lieutenant: technology veteran Kevin Johnson.

Johnson, who joined Starbucks’ board seven years ago and became chief operating officer in 2015, will take the CEO job on April 3. Schultz will keep the role of executive chairman at Starbucks, focusing on the rollout of its upscale Reserve brand.

“I’m not leaving the company,” Schultz, 63, said on a conference call after the change was announced Thursday. “But Kevin and the team are in charge.”

The news jarred investors, who briefly sent the shares down as much as 12 percent, though Johnson was seen as a possible successor since he took the No. 2 job last year. For many shareholders and customers, Schultz has embodied Starbucks. Over the past three decades, he built the world’s largest coffee chain, bringing lattes and mochas to 70 countries. And he’s used the company to pursue social causes -- occasionally clumsily -- such as racial strife and sustainability.

The elevation of a longtime tech executive to the CEO role underscores Starbucks’ shift toward innovation. The company has used its mobile application and other tech services to fuel sales in recent years, and it’s counting on Johnson to bring a Silicon Valley mindset to the coffee giant.

Microsoft History

Johnson, who joined the board in 2009, was tapped for the operating chief job after  Troy Alstead went on sabbatical. The 56-year-old has previously served as an executive at Microsoft Corp. and Juniper Networks Inc. In 2008, he was named to the National Security Telecommunications Advisory Committee, where he served under presidents George W. Bush and Barack Obama.

Schultz will focus on expanding Starbucks’ Reserve Roasteries, a chain of massive coffee houses that provide tastings and other experiences, as well as new Reserve retail stores. The executive has been working to position the Reserve name as Starbucks’ new upscale brand. Schultz also will continue the company’s “social impact” efforts. As CEO, he’s already pushed to open stores in low-income areas and supported gay marriage.

It hasn’t always gone smoothly. Schultz’s push for employees to discuss race relations with customers was criticized as ham-fisted.

Investors weren’t anticipating Schultz’s departure so soon, though the new arrangement could have benefits, said Bloomberg Intelligence analyst Jennifer Bartashus.

“The timing of this is a surprise,” she said. “I do think the ‘divide and conquer’ strategy is probably good for the company long-term.”

Mobile Transactions

Starbucks’ digital and technology prowess has put it ahead of its peers, allowing it to serve more customers faster. Same-store sales rose 5 percent in the Americas region in the most recent quarter. Mobile payments accounted for about 25 percent of U.S. transactions in that period.

Since Johnson became operating chief, Starbucks has rolled out mobile ordering across the U.S. and even tested delivery. The Seattle-based company also is boosting spending on digital ventures, including taking its app and rewards platform to countries such as China.

Though shares of Starbucks tumbled immediately after the announcement, they recovered some of that ground during extended trading. As of 5:54 p.m. in New York, the stock was down 3.3 percent to $56.58.

Second Retirement

This isn’t Schultz’s first retirement as CEO. After serving in the job from 1987 to 2000 - punctuated by an initial public offering in 1992 -- he stepped down in 2000. But Schultz returned in 2008 after Starbucks faltered. The company had opened too many locations too quickly and got hit by the financial crisis. Profit plunged.

Schultz put Starbucks back on firmer footing.

“The difference between then and now couldn’t be greater,” he said on Thursday. “In 2007-2008, the country was going through a cataclysmic financial crisis that affected all companies and Starbucks was not immune.”

The company now has the “strongest leadership team in history,” he said.

It’s been speculated that Schultz might make a run for U.S. president, though he’s repeatedly said he has no intention of doing so. While speaking at a conference in New York last month, Schultz said he wouldn’t serve as part of President-elect Donald Trump’s cabinet. He also denied rumors of running for president last year in a New York Times opinion piece.

It’s probably too early to tell if Schultz has designs on the White House, Bartashus said.

“Certainly if he is interested in a political career, he has the next 2 1/2 years to sow those seeds,” she said. “A lot will depend on the first half of the Trump administration.”

News by Bloomberg, edited by Hospitality Ireland