After building a global coffee empire, Starbucks CEO steps down
Howard Schultz leaves his position as questions loom about the company’s growth prospects
SEATTLE— On April 2, 63-year-old CEO Howard Schultz is stepping down from his second stint at the helm of the company he built into a global empire.
The first time he left, an overexpanding Starbucks crashed into a sharp recession, and he returned to put the company back on the rails.
This time, he leaves the CEO position as questions again loom about Starbucks’ growth prospects — and about his own future as an advocate for social causes and, perhaps, a political candidate.
He’s turning over to his successor a company on stable footing, with a digital strategy that has made Starbucks a leader among brick-and-mortar retailers.
And he’s leaving a legacy of a company that strives to take care of its employees while taking on a range of social issues from race relations to the hiring of veterans and refugees.
Schultz “made a powerful brand, a powerful company, with a set of values,” said Nancy Koehn, a professor and historian at Harvard Business School. “Particularly in this second round, he’s continued to evolve the company as the world marketplace, the global residents, have changed.
“He’s an important path-breaker in es- tablishing a bigger social and political footprint for a public company,” Koehn said.
After stepping down as CEO, Schultz will remain at Starbucks as executive chairperson, focusing on building the company’s more premium businesses, including its high-end showpiece Roasteries, and a new line of higher-end Reserve coffee shops.
He’ll be succeeded as CEO by Kevin Johnson, Starbucks’ president and chief operating officer, who has led much of the day-to-day operations since last July, when the company said Schultz would be concentrating his efforts on long-term global strategy and innovation.
Schultz, who declined to be interviewed, joined Starbucks in 1982, when the coffee chain was tiny and focused mainly on selling coffee beans. After he and a group of investors bought Starbucks for $3.8 million (U.S) in 1987, it began a rapid expansion that took it from 17 stores that year to165 by1992, the year it went public.
At the time, coffee consumption was declining in favour of soft drinks, and those Americans who did drink coffee purchased brands such as Folgers to make at home, said Patti Williams, who teaches marketing at the Wharton School at the University of Pennsylvania.
“Not only did he (Schultz) have a vision that coffee could be a growing category but also a vision that coffee shops would be appealing to a large portion of the culture,” Williams said. “One of the things he did right was he made coffee a luxury in a way it hadn’t been previously: something to be savoured and appreciated.”
By the time Schultz stepped away as CEO of the company the first time in 2000, there were some 3,500 Starbucks stores worldwide.
But Starbucks hit choppy waters, with traffic at its stores falling as it pursued too-rapid growth, even as the U.S. was heading into a recession.
“It had become ubiquitous. It was everywhere, so it had somewhat commoditized itself,” Williams said.
Schultz, who had remained chairperson of the board, stepped back in as CEO in 2008.
Schultz ultimately shuttered some 900 stores, cut tens of thousands of jobs and drastically slashed expenses. Eventually, the measures started working, as the company’s sales and profits, as well its share price, trended up again.
Schultz is “one of the few globally recognized CEOs who turned around a multibillion-dollar enterprise when growth stalled,” Kotha said. “The probability of a company coming back after it stalls like that is very low.”
Schultz also encouraged a culture of experimentation, launching the likes of Via instant coffee. Not every venture succeeded. There was the spate of purchases in 2011 and 2012: the La Boulange bakery chain, Teavana tea shops and Evolution Fresh juice company. Starbucks has since shuttered La Boulange’s retail locations, essentially pulled the plug on the Teavana tea bars, and is closing the last of the four Evolution Fresh stores. There was the Evenings program, killed this year, in which stores served wine, beer and small plates.
Perhaps the most important experiment was Starbucks’ move into the digital realm, where it’s now seen as a leader among brick-and-mortar retailers. The company now has a prominent social media presence.
“Starbucks had no digital strategy to speak of all the way until 2007,” said Koehn, of Harvard Business School. “Schultz and some knowledgeable others brought the company wrenching and screaming into the digital age.”
As much as Schultz is associated with coffee, he may be just as well known for his outspoken stances on social and political issues — and getting the company involved in them.
It’s debatable whether the company’s political stances end up helping or hurting sales. But Koehn sees consumers increasingly looking for companies that reflect their politics and values.
The company sometimes falls short of its aspirations.
For example, employees have told stories of hardship brought on by erratic scheduling practices and accused the company of drastically cut- ting work hours to the point where workers were having a hard time piecing together enough hours to make ends meet. (The company has said that it’s changed its scheduling practices and that there was no topdown directive to cut work hours.)
Today, Starbucks has about 26,000 stores in 75 countries. Last fiscal year, it logged $21.3 billion in revenue and a record $2.8 billion in profit. It plans to add 12,000 stores worldwide over the next five years.
There are signs of challenges to come, though.
A contingent of “third wave” coffee shops, such as Stumptown in Portland and Intelligentsia in Chicago, is also nipping at Starbucks from the high end, garnering much of the buzz among coffee connoisseurs. Reclaiming that high end — seen as the next great opportunity — is why Starbucks is focusing so much on expanding its premium coffee business, the arena Schultz will be overseeing once he steps down as CEO.
That business includes its Reserve line of small-lot premium coffee beans; the expansive Roasteries where the company roasts the Reserve beans and brews coffee using a variety of methods; and a line of yetto-be-launched Reserve stores that will serve Reserve coffees.