Commentary

Johnson Named Starbucks CEO; Schultz To Focus On Roasteries

Starbucks’ founder-in-effect, chairman and chief executive Howard Schultz will hand over the CEO position to COO Kevin Johnson in April to “shift his focus to innovation, design and development of Starbucks Reserve Roasteries around the world, expansion of the Starbucks Reserve retail store format and the company’s social impact initiatives,” the company announced yesterday. 

The game-changing visionary “could be considered the Steve Jobs of coffee,” writes the New York Times’ Andrew Ross Sorkin. “This is a big day for me,” Schultz tells Sorkin in an interview. “I love the company as much as I love my family.” 

But Schultz says it’s “the right time to hand the keys to Mr. Johnson, whom he described as being ‘better equipped’ to ‘run the company than I am,’ ticking off a list of Mr. Johnson’s operational talents, and saying that he wanted to ‘relinquish the role and responsibility to the right person,’” Sorkin continues.

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Johnson has been on the Starbucks board since 2009 and was named COO in January 2015. Previously, he was CEO of Juniper Networks and president of the platforms division at Microsoft, Catherine Garcia reports for The Week.

The financial markets were wary of the transition, with shares off more than 3% in premarket trading today. 

Schultz had previously stepped down as CEO in 2000 but returned in 2008 “to guide the company through the financial crisis,” reports Lindsay Whipp in Financial Times. Since then, Starbucks’ margin on earnings before interest and tax has tripled to 18.1% and shares have risen nearly eightfold.

Schultz isn’t exactly retiring to the veranda with a grande Iced Caffè Latte.

“Schultz said the company has plans for at least 20 roasteries and 1,000 Reserve stores worldwide,” report Sarah Halzack and Jena McGregor for the Washington Post.

“Starbucks’s move toward high-end coffee, a project referred to internally as ‘Siren Works’ — after the mythological creature in the coffee chain’s logo — is aimed at refreshing its brand, which has been facing increasing competition from specialty roasters such as Stumptown and Intelligentsia, as well as from mass coffee purveyors like Dunkin’ Donuts, which has been introducing more drinks such as cold-brewed coffee,” reports Julie Jargon for the Wall Street Journal.

Schultz tells Jargon: “This gives me the entrepreneurial freedom to do what I think I do best.” Jargon writes that “the big bet is based solely on Mr. Schultz’s instinct that it is the right thing to do. ‘There was no research,’ he said. Convincing his board and senior management team to create another brand wasn’t easy.”

But his POV does tend to prevail, and few doubt it will continue to.

“Charles Elson, a professor of finance at the University of Delaware and a corporate governance expert, said the move appeared to be a ‘title swap’ as the executive chairman is ‘still running the show,’ writes FT’s Whipp. 

Others, however, speculate that Schultz has his eye on a second career. 

“During an interview with CNN in September, Schultz publicly endorsed Democratic presidential nominee Hillary Clinton, and he did not rule out running for office himself at some point. In his message to employees Thursday, he said he planned to extend his ‘focus on our social impact agenda,’” the Associated Press reports. Schultz “has made Starbucks a vocal part of the national conversation on issues like gun violence, gay rights, race relations, veterans rights and student debt,” points out the NYT’s Sorkin. 

The more than 25,000 Starbucks outlets around the world, meanwhile, face challenges that the tech-oriented Johnson may be more adept at addressing. 

“Starbucks, like virtually every other retailer, is trying to adapt to an increasingly digital world. Starbucks has had unusual success at it, developing a widely used mobile payment app that has led to many headlines about how the coffee chain is transforming into a technology company,” point out the WP’s Halzack and McGregor. “In tapping Johnson as chief executive, Starbucks is making a statement about its intentions to stay out in front in the digital realm.”

But the competition is undoubtedly getting more fierce.

“Just based on casual observations in San Diego, Los Angeles and San Francisco: The local coffee shops that do their own roasting appear to be flourishing,” writes Herb Greenberg, a partner at Pacific Square Research, on LinkedIn. 

But “I believe Schultz will go down as one of the great CEOs, period. And one thing is for sure: Creating a concept is one thing; executing is another. He did both. Never ever count him out,” Greenberg concludes. “And don't assume that just because he's 63 he's headed out to the pasture.”

Hear, hear!

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