On Thursday, the company’s chief executive, Howard Schultz, announced that he will step down on April 3. Starbucks’ chief operating officer, Kevin Johnson, will take over.
Schultz will stay on as executive chairman and “will shift his focus to innovation, design and development of Starbucks Reserve® Roasteries around the world,” the company said in a statement.
In a call with investors and reporters, Schultz further explained his vision for the company’s high-end coffee stores:
Since its opening two years ago, our Seattle Roastery has become widely recognized as the world’s most immersive, coffee-forward retail experience. Executives from premier global retailers like Apple, Nike and Zara have shared with me their view that the Roastery delivers the best retail experience – in or out of coffee – that they have ever encountered. Our Roastery is attracting customers and visitors to Seattle alike, and casting a bright halo across the entire Starbucks global brand and ecosystem.
With the Roastery, we introduced into the coffee category a previously unattained level of premiumization. Its success is unparalled, last year achieving a comp sales increase of 24% and delivering a ticket that is four times the ticket of a typical Starbucks store. The Roastery has become a learning laboratory for breakthrough innovation and experiential design and a beacon for the next wave of Starbucks global growth and evolution.
Going forward, we will open at least 20 Roasteries around the world, six by the end of calendar 2019 alone. At the same time, elements of the Roastery are forming the basis of the 1,000 or more Starbucks Reserve stores we will be opening around the world in the years ahead.
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The move is Starbucks’ way of grabbing additional profits (at up to $12 a cup) as well as boosting its image.
The Wall Street Journal reported:
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.
Executives’ desire to be creative
Is Schultz’ focus on building Starbucks’ high-end offerings about more than just boosting the coffee chain’s bottom line?
Forbes’ contributor Richard Kestenbaum posited:
I don't mean to disparage Starbucks, they created a new category in America, changed consumer habits and are enormously profitable. Those are all about the hardest things to do in business for any company. But when you look at where they are today and where the world is going, it's not surprising that a senior person in a dominant retail company would want to do something more innovative.
Kestenbaum continued:
… New, creative retailers are much more like professional service organizations than they are like the old vertical structure with strict reporting lines and responsibilities. When you structure organizations horizontally instead of vertically and you get good people in the company, something amazing happens: creativity. And thus it becomes possible to build a big organization with creative people who can not only be successful and happy in their jobs but they can also offer consumers much more interesting products and environments.
“One of the characteristics of having a horizontally-oriented organization chart is that it can't be grafted on to a traditional company,” Kestenbaum wrote. “It just won't fit and the two can't coexist.”
The move’s effect on Starbucks’ image
In his call on Thursday, Schultz gave Johnson a glowing recommendation:
Kevin brings to the CEO role an unparalleled understanding of the market dynamics and strategic choices that have driven Starbucks to become one of the world’s most recognized and respected companies and brand.
We share a passion for customer-focused innovation and a commitment to preserving Starbucks heritage. Our complementary backgrounds – my entrepreneurial journey building Starbucks and Kevin’s decades spent scaling global businesses – will continue to help Starbucks navigate this new period of worldwide growth and innovation.
Kevin is, in every respect, a true servant leader and a person whose courage, compassion and empathy model the very characteristics we want for all partners and all our leaders. His approach to solving complex problems and his ability to bring out the best in people will continue to make all of us at Starbucks better in the same context that he has made me better.
However, the endorsement didn’t calm investors, who sent shares tumbling after the announcement.
The reason for the anxiety lies in Schultz’ embodiment of Starbucks’ thriving reputation and business success.
The CEO change 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 turned much of the world into coffee aficionados, 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.
“I can’t try to be Howard. I’m not Howard,” Johnson told broadcasters on CNBC’s “Squawk Box.”
Perhaps that’s not such a bad thing—once confidence in Johnson’s leadership has been instilled.
On Friday morning, Starbucks’ shares were down 2.39 percent in pre-market trading.
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