Uncertainty brewing with Starbucks chairman's exit

Howard Schultz leaving as coffee chain faces slew of challenges, such as rising competition

Mr Howard Schultz, who built Starbucks into a global powerhouse, says running for public office could be among the range of options he is considering, but he is "a long way from making any decisions about the future".
Mr Howard Schultz, who built Starbucks into a global powerhouse, says running for public office could be among the range of options he is considering, but he is "a long way from making any decisions about the future".PHOTO: REUTERS

LOS ANGELES/NEW YORK • Starbucks Corp executive chairman Howard Schultz is stepping away from the coffee chain he built into a global powerhouse, putting management firmly into the hands of chief executive Kevin Johnson, who had an office connected to the co-founder's and regularly turned to Mr Schultz in times of crisis.

Mr Johnson faces a raft of challenges, such as cooler growth in Starbucks' dominant United States market and intense competition from rivals - ranging from high-end coffee shops to more affordable fast-food chains - as the company undertakes a massive expansion project in China.

While Mr Johnson, a former technology executive, can turn to new Starbucks chairman Myron Ullman and his decades of retail experience, the news left some investors questioning how the iconic coffee brand will evolve after the June 26 departure of Mr Schultz, who has been a near-constant presence for nearly four decades and who crafted the company's inclusive culture.

"It removes a perceived leadership 'safety net' and creates a degree of uncertainty at a time when Starbucks faces a number of challenges," said BMO Capital Markets analyst Andrew Strelzik. The announcement also fuelled speculation that Mr Schultz, 64, a liberal-leaning executive known for being outspoken on social issues ranging from gay marriage to government gridlock, could run for president.

"For two years, I have offered that Mr Schultz will seek the 2020 Democratic presidential nomination. I still believe so," said Mr Douglas Kass, founder of hedge fund Seabreeze Partners Management, who has a "short" position on Starbucks shares.

Mr Schultz has repeatedly denied that he has political ambitions, but he appeared to be more open to the idea in an interview with CNN last week. Asked about a US presidential run, he said in a New York Times article on Monday: "I intend to think about a range of options, and that could include public service. But I'm a long way from making any decisions about the future."

Starbucks declined to make Mr Schultz or its other executives available for comment.

Mr Schultz, who introduced many inexpensive drip coffee-drinking Americans to lattes and other espresso drinks, took the Seattle-based company from 11 cafes to more than 28,000 in 77 countries, brewing up outsized gains for many investors. He stepped down as CEO in 2000, but retook the helm in 2008 after the US housing crisis sent Starbucks, which had been on an expansion tear, spiralling.

He closed hundreds of stores, turned the company around and remained hands-on after transferring the CEO job to Mr Johnson in April last year. He was heavily involved in steering the company through an anti-bias training programme last month. That effort came after a Starbucks cafe manager's call to Philadelphia police in April resulted in the arrests of two black men who were waiting for a friend - leading to protests and accusations of racial profiling at the chain.

Mr Schultz was also overseeing the opening of upscale Reserve stores and massive Roastery showrooms as part of an effort to shore up Starbucks' coffee leadership. "He's leaving when it's still in its nascent form," Bernstein analyst Sara Senatore said of that project, known as Siren Retail.

"The last few times he's tried to step away, he's ended up stepping back in," said Mr Tony Scherrer, director of research at Smead Capital Management.

Mr Schultz will resign from Starbucks' board and be named chairman emeritus on June 26, the company said. Starbucks shares were down 0.8 per cent at US$56.64 on Monday.


A version of this article appeared in the print edition of The Straits Times on June 06, 2018, with the headline 'Uncertainty brewing with Starbucks chairman's exit'. Subscribe