Starbucks' Schultz Stepping Down as CEO to Focus on Higher-End Shops
Howard Schultz is stepping down as chief executive of Starbucks Corp. to lead an effort at the company
to build high-end coffee shops that will charge as much as $12 a cup, his next attempt to revolutionize the way
Americans consume coffee.
Mr. Schultz, 63 years old, is handing over the CEO role to Chief Operating Officer Kevin Johnson, who served as a
director of the company for seven years before joining its executive team two years ago. Mr. Schultz, who is credited
with taking the company from small beginnings to an international behemoth, began handing over daily oversight of the
company to Mr. Johnson a few months ago.
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.
Mr. Schultz will remain chairman of Starbucks after he steps down as CEO in April and said he has no plans to step
away from the company. "This gives me the entrepreneurial freedom to do what I think I do best," he said in an
But the big bet is based solely on Mr. Schultz's instinct that it is the right thing to do. "There was no research,"
he said. Convincing his board and senior management team to create another brand wasn't easy.
Mr. Schultz changed the way Americans drink coffee and even socialize, creating what he called a "third place" where
people could gather outside home and work.
Starbucks showed Americans that coffee could be more ambitious than home-brewed Folgers. Mr. Schultz joined the
original company as its marketing director in 1982 and, after a dispute with its then-owners, left in 1986 to open his
own coffee shop, which he named Il Giornale. He later bought the Starbucks coffee business from the original owners,
renamed his own shop Starbucks and went on to expand the brand to more than 25,000 stores across the globe.
Mr. Schultz said the move to opening high-end coffee shops marks the company's biggest strategic change since it began
opening shops overseas 20 years ago. Mr. Schultz said the approach would provide an experience that would entice
consumers, who are increasingly shopping online, to leave their homes.
Analysts see plenty of risks for the new venture. If the economy falters, they say, investors won't be too keen on
Starbucks spending what some estimate will be roughly $100 million a year building fancy new stores that may draw few
Mr. Schultz was encouraged in part by the outsize sales performance of the company's first such shop, the Starbucks
Reserve Roastery and Tasting Room in Seattle. There, coffee is roasted and then brewed using a variety of methods by top
Starbucks baristas recruited from around the country. A 12-ounce cup of small-batch coffee brewed using a process
involving a siphon costs $12.
The Roastery is the 15,000-square-foot embodiment of an idea Mr. Schultz dreamed up seven years ago. In his journal,
he scribbled the words "the Willy Wonka of coffee," thinking that someday he would build a grand temple to coffee. At
that time, Starbucks was still the predominant place to buy a good cup of coffee. But the better-coffee market has since
Nearly two years after the Roastery opened in an abandoned Volvo dealership in Seattle Starbucks is planning to open
20 to 30 more like it, including one twice its size in Shanghai next year.
The company plans to build as many as 1,000 smaller stores similar to the Roastery, minus the on-site roasting, under
the Starbucks Reserve brand, with a logo that consists of a gold star and the letter "R." The first two stores are
slated to open in Chicago and Seattle in the summer.
Starbucks is also remodeling many of its more than 25,000 Starbucks stores with Reserve-branded coffee bars where
customers can get the same kind of coffee education and variety of brewing methods as at the Reserve stores.
Mr. Schultz said he built his case for the new operation by studying other companies that have successfully extended
their brands, such as Porsche's creation of a luxury sport utility vehicle, which was initially met with skepticism, and
Nike's creation of the Air Jordan brand.
Cliff Burrows, who left his role running the Americas division, Starbucks's largest business, to join Mr. Schultz on
the new project, said: "I've worked with Howard a long time, and there are times he has a vision and clarity that those
of us around him don't see but we accept it," he said.
Moving too far upscale could be a distraction to the operation of Starbucks's traditional coffee shops. Credit Suisse
analyst Jason West said: "The menu is getting complex at Starbucks. If you're going to throw on top of that another
level of premiumization and innovation and add an espresso bar, this could make things more challenging."
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