The exit of Howard Schultz from coffee giant Starbucks is being hailed as the “end of an era,” demonstrating the impact of a CEO with a vision.
When Howard Schultz first happened upon Starbucks in the early 1980s, it consisted of a handful of coffee shops in Seattle catering to a niche market of coffee enthusiasts. Schultz took the reins in 1987 with a vision of creating a customer experience inspired by Italian coffeehouses. Under his decades of leadership, Starbucks became the biggest coffee chain in the world as well as one of the world’s most popular brands. When Starbucks went public in 1992, it had 165 locations. Today it has a global footprint of more than 24,000 stores and over 250,000 employees.
Schultz stepped down as Chief Executive of Starbucks in 2017 and became Executive Chairman. Kevin Johnson, who joined the company in 2009, took over the CEO role. He had served previously as Chief Operating Officer. Schultz leaves the company altogether effective June 26.
Starbucks’ distinct model, which Schultz created, emphasizes the quality of the customer experience and the integral role of front-line staff. This model has stayed remarkably consistent as Starbucks expanded into global markets, and it drove the company’s share price for years. But more recently, Starbucks has been grappling with competition from rivals such as Germany’s massive JAB Holdings, and on the other end of the spectrum, independent coffee shops. Growth has been slowing in its key U.S. market, at a time when it is undertaking massive expansion in China. The departure of Schultz is adding to investor concerns.
“Investors did not anticipate Schultz (would) return to the CEO role to help improve domestic trends, but we view the resignation as an incremental negative for shares given the loss of a powerful mind,” wrote analyst Andrew Charles of Cowen & Co. “(It is the) end of an era.”
Schultz’s exit puts management firmly in the hands of Kevin Johnson and Myron Ullman, former CEO of J.C. Penney, who will now serve as Executive Chairman of Starbucks, Reuters reports. “It is reasonable for shareholders to worry about the retirement of a legendary leader from the brand, especially one who defines the culture as Howard does,” RBC Capital Markets analyst David Palmer wrote in a note to clients.
This is not the first time Schultz has walked away. He stepped down as CEO in 2000, and the company “suffered immensely” as a result, according to Robert Passikoff, president of consultancy Brand Keys. Schultz returned to the top executive role in 2008. Passikoff said that in the past 18 months, same-store sales have been down, and shares are down this year. These indicators mean that Starbucks will need to keep an eye on the brand, he said.
“He was the one who could and did step in when needed. Yes, SBUX [Starbucks Corp.] has a deep bench and talented board...but there was only one Howard,” Morgan Stanley analyst John Glass wrote.
