With Starbucks CEO succession plan in place, Howard Schultz plots his priorities

Howard Schultz said he would judge his work a success if employee turnover drops and customer service improves. The company also has to restore the trust of Starbucks investors (AP)
Howard Schultz said he would judge his work a success if employee turnover drops and customer service improves. The company also has to restore the trust of Starbucks investors (AP)


Interim chief pledges to mold new generation of leaders, improve coffee chain’s service

Howard Schultz has a bucket list for his remaining six months as chief executive of Starbucks Corp. before exiting for the third and—he has pledged—last time.

Mr. Schultz would like to ensure that the strategic revamp plan he and other executives developed is on track, he said in an interview, and he “desperately" wants to get back to China, the company’s biggest international market, where Starbucks has struggled with a drop in sales given Covid-19 restrictions.

He also aims to imbue the next generation of leaders with Starbucks’s culture and history “so that some of the issues that surfaced the last couple of years, don’t surface again," he said.

The 69-year-old businessman said he would judge his work a success if employee turnover drops and customer service improves. The company also has to restore the trust of Starbucks investors, he said.

Mr. Schultz, architect of Starbucks’s rise from a six-location coffee chain to a global brand, made a surprise return in April to again take leadership of the company. His third stint as CEO followed what he said were failures by Starbucks to fully address a big shift in consumer behavior coming out of the Covid-19 pandemic, with lines growing as baristas worked to make often-complex drinks and increasingly serve them via drive-through windows.

Employees weren’t taken into account in the company’s business decisions, all of which led Mr. Schultz to cancel billions of dollars in stock buybacks earlier this year, he said.

He said this go-round would be his last time leading the company, after he previously stepped down as CEO in 2000 and 2017. He said that Starbucks has found the leader it needs in Laxman Narasimhan, CEO of U.K.-based consumer-products company Reckitt Benckiser Group PLC, the maker of Lysol. Starbucks earlier this month named Mr. Narasimhan as Mr. Schultz’s successor.

As Mr. Schultz prepares for the transition, Starbucks has set ambitious sales and profit targets. The revamp crafted by Mr. Schultz and other executives in recent months will boost its financial performance, the company said last week. While Starbucks prepares to invest billions of dollars in its stores and employees, the company has pledged to return $20 billion to shareholders through dividends and stock buybacks across its 2023 to 2025 fiscal years.

Investors reacted favorably to the company’s road map, with Starbucks stock ranking as one of the best performers on the S&P 500 on the Wednesday following its presentation to investors. Wall Street analysts were generally upbeat, though some expressed caution about Starbucks’s increasing sales and profit projections while transitioning to a new CEO amid global economic uncertainty.

“Starbucks is unlikely to be accused of setting the bar low for its new CEO," according to an investor note from KeyBanc Capital Markets. The company’s new projections were on the high end of investor expectations, analysts with the Wall Street firm wrote.

When Mr. Schultz returned to the company as CEO in 2008, the chain’s sales had slumped. It took about 17 months to turn things around then, he said. This year, Mr. Schultz returned at a time when Starbucks sales are growing, and he said it would take less than a year to fix the problems he has identified at the company. Kevin Johnson, the Starbucks former CEO who retired before Mr. Schultz’s latest return, had no immediate comment.

In China, renewed Covid-19 lockdowns and increased competition are challenging business in Starbucks’s second-largest market, which generates around 13% of the company’s annual sales. Starbucks said last week that it aimed to build roughly 3,000 more locations in China by 2025, or around one new location every nine hours. Mr. Schultz said he hopes to bring Mr. Narasimhan to China as soon as the country loosens Covid-19 policies for visitors.

Analysts have questioned Starbucks’s plans to build so many stores in China with the country’s economic outlook remaining murky. Investors have more broadly worried over the continued demand for Starbucks’s elaborate coffee drinks with consumer sentiment weakening. The company has said that escalating consumer costs haven’t hurt demand so far, but executives have acknowledged that higher costs are curbing its profits.

More broadly, Starbucks anticipates its costs for ingredients and other goods to increase next fiscal year on top of high levels of inflation. The company expects wage increases, which have fueled higher costs among suppliers, to continue.

“We are sitting on record levels of inflation in our business," Starbucks Chief Financial Officer Rachel Ruggeri said.

Thisweek, Mr. Schultz said, he will visit Starbucks’s design studio in New York City, where prototypes are being created for new stores geared toward to-go sales. Starbucks plans to add around 2,000 new stores in the U.S. by its 2025 fiscal year, and 2% of those will have traditional cafe formats. Drive-through locations will dominate the company’s new stores, with delivery and pickup-only locations making up the rest.

Mr. Schultz said that he told executives assessing Starbucks’s store openings and other financial metrics announced last week to take several days to determine whether they felt confident in its guidance, with no retribution if they brought the fiscal targets down. They stuck with the numbers, he said.

The plan assumes that inflation continues and China’s recovery isn’t linear, Mr. Schultz said.

Mr. Schultz said he and Mr. Narasimhan have set a schedule for their travels and goals over the coming months. Around the time of the Starbucks annual meeting in March 2023, Mr. Schultz will turn over the keys to the company to Mr. Narasimhan and exit the building, Mr. Schultz said.

“There has to be one leader of Starbucks. It will not be me. It’ll be Laxman," Mr. Schultz said. “I’ll be on the board, but I’m only here if and when he needs me, and he’ll be the leader of the company."


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