The person who transformed Starbucks from yet another coffee shop to an $86 billion brand is stepping down as a CEO for the second time.
Howard Schultz, one of the most famous CEOs, has announced the decision to resign from his CEO position at Starbucks (NASDAQ: Starbucks Corporation [SBUX]) and work on a new project instead. According to the statement from yesterday, Schultz will still stay at the company as an executive chairman of the Board but his responsibilities will shift towards Starbucks' innovation projects. As he told the Wall Street Journal in an interview, this would give him "the entrepreneurial freedom to do what I think I do best".
The CEO position will be taken over by Starbucks' Chief Operating Officer Kevin Johnson, an ex-Microsoft (NASDAQ: Microsoft Corporation [MSFT]) executive with over 9 years of experience at Starbucks. Schultz told Wall Street analysts, when asked about his reasons for stepping aside, that Johnson was much better prepared than him to lead Starbucks in the future and continue its digitalization. Schultz said he was "delighted" that Johnson accepted the offer:
“As I focus on Starbucks next wave of retail innovation, I am delighted that Kevin Johnson — our current president, coo, a seven-year board member and my partner in running every facet of Starbucks business over the last two years — has agreed to assume the duties of Starbucks chief executive officer. This move ideally positions Starbucks to continue profitably growing our core business around the world into the future,” Schultz said in the statement.
However, the announcement triggered a negative reaction in the stock market, with Starbucks shares briefly dropping 12% but slightly recovering afterwards, reports Bloomberg. Disapproval from the side of investors can be explained by the bad memories of Schultz's previous resignation as a CEO between 2000 and 2008. During that long period, Starbucks had its worst sales performance since the company's IPO back in 1992. After all, investors' negative reaction to the announcement is not that surprising, considering the context.
The 63-year old Howard Schultz is one of the most famous CEOs and Starbucks's 'legend', as he was the one to transform the company from a mediocre coffee shop to an $86 billion giant. Bloomberg's Shelly Banjo adds that the period between 2000 and 2008 was one of the hardest for the company, when Starbucks lost more than half of its value and went through 5 consecutive years of comparable sales declines before Schultz returned in his role.
As a comparison, ever since Schultz came back in 2008, Starbucks' shares skyrocketed nearly 1,200% as he gave the company a much-needed boost by working towards positioning Starbucks as a premium brand domestically and internationally. And it looks like his plan worked out quite well. That is why, many have asked Schultz yesterday if the history would repeat itself with his second resignation, considering how much the company was damaged the previous time.
“The difference between then and now couldn’t be greater. In 2007-2008, the country was going through a cataclysmic financial crisis that affected all companies and Starbucks was not immune,” Schultz said yesterday, as reported by Bloomberg.
He added that Starbucks' new management team is the "strongest in history". Yet, this time Schultz is not going far from the executive board and will still be present at the company, he emphasized during the call.
Starbucks goes "ultra-premium"
After the official resignation next April, Schultz will be focusing on a new project that he called the biggest strategic change since Starbucks' international expansion 20 years ago. According to the statement, Schultz will work on the development of Starbucks' "ultra-premium" retail locations named Starbucks Reserve and Starbucks Roasteries.
The Wall Street Journal says that Schultz was encouraged to work on this project by the success of the first shop of this kind opened in Seattle, Starbucks Reserve Roastery and Tasting Room. In this special Starbucks location, customers are offered a cup of coffee brewed by Starbucks top baristas using special siphon brewing methods. A 12-ounce cup costs $12, which is three times the price of a normal cup of coffee at Starbucks. Now, Schultz plans to open more than 1,000 new stores under the Starbucks Reserve brand that would be completely redesigned and even get a new logo, say the experts. On top of that, as many as 25,000 already existing stores are planned for remodelling into the high-end coffee shops.
Schultz have been cherishing this idea for over 7 years, says the WSJ, but the market situation has dramatically changed since then. Starbucks can still call itself a place to buy a good cup of coffee whereas the number of companies offering quality coffee has exploded in the U.S. and abroad. That is why, the new idea of Starbucks chief was not so welcomed by the experts claiming that this would distract Starbucks from managing its traditional retail locations and slow down sales. However, no exact details about the Starbucks Reserve project have been shared by now.
The resignation of Starbucks' famous chief does bring some uncertainty around the company's experienced but still new management. It is yet to see whether Schultz's new project will give Starbucks a new boost or just become another struggle.