In March 2022, Howard Schultz was asked to come back.
Starbucks was looking for a CEO again.
They needed his help.
This was not the first time Howard Schultz had been asked to become the CEO of Starbucks.
Not even the second time. It was the third time.
Why did he choose to return each time? And why did he leave in the first place?
To understand how Howard became Starbucks’ CEO a third time, we have to delve back in time.
Starbucks Not Founded by Schultz
Technically speaking, Howard was employed at Starbucks. He did not found the company.
Back then, Starbucks was a small coffee bean and coffee equipment supplier.
A trip to Milan, Italy, convinced Howard that Starbucks needed to open lively cafes where people hung out.
The founders of Starbucks were not interested.
So in 1985, Howard Schultz left to start his own company, Il Giornale.
Il Giornale was what Howard had in mind. The coffee beans were sourced from a reliable source (the original Starbucks).
Il Giornale did well. So well, in fact, that they wanted to in-house sourcing coffee beans.
Around the same time, Starbucks’ founders wanted to exit their company.
And thus, Il Giornale acquired Starbucks.
Il Giornale was a brand name proving to be difficult to associate for the American customers.
Howard decided to rebrand Il Giornale to a brand Americans were more familiar with — Starbucks.
This is why we can say Starbucks was not founded by Schultz. But technically speaking, Howard Schultz did found the company that acquired Starbucks.
So he was the founder of the company that is Starbucks today.
Schultz Doesn’t Own Starbucks
In 1992, Starbucks went for an IPO.
At that point in time, they had around 160+ Starbucks outlets.
Howard Schultz had needed money to reach this point.
At the time of IPO, he owned roughly 8% of Starbucks. The rest was with venture capital investors, angel investors, private equity, etc.
8% is significant, but in no way is it a controlling stake.
Since its IPO in 1992, Howard’s stake kept reducing as he sold some shares to diversify his own wealth, and Starbucks issued new shares.
In 2000, Howard decided to step down from the role of CEO.
He was tired from the intense grind of heading the company. By the time he stepped down, the cafe count had reached over 3,000 (from the 165 cafes at the time of IPO).
Howard became the Chairman and Chief of Global Strategy while handing over the role of CEO to Orin Smith (who was the COO till that point).
This era was one where Starbucks was rapidly expanding and quality suffered a bit, though the reach was getting better and better.
In 2005, Orin was succeeded by Jim Donald.
The expansion continued.
The in-cafe experience kept deteriorating. The baristas were not as well trained. The vibe was not what Starbucks had been known for.
It was becoming just-another-cafe-chain.
Schultz Is Back
Howard Schultz owned only about 2-3% of Starbucks by 2008.
As the chairman, he didn’t have much operational power to change things.
Howard wrote to the management about this in 2007, about the commoditization of the Starbucks experience.
The board agreed with him.
They fired Jim a year later and hired Howard Schultz as CEO again.
There was one famous evening when all 7,100 Starbucks outlets in the US were shut so the baristas could be upskilled.
Howard’s second stint as the CEO of Starbucks was marked by another round of consistent high-quality growth.
The number of stores expanded, the quality of service improved, and offerings were made more relevant.
The star work of this period, however, was the rewards program coupled with an app to pay. Most other companies in the space had not done this with success as well as Starbucks had.
In 2017, he decided to step down again. He would become the executive chairman and focus his attention on philanthropy, and some other responsibilities.
Kevin Johnson, the COO at the time, was appointed as the new CEO.
At the time of quitting, Schultz still owned around 2-3% of Starbucks. Roughly the same as his stake in 2008 when he rejoined as CEO.
But thanks to the immense growth, the market-cap of the company had gone from about $12 billion to about $80 billion.
And thus, Howard Schultz’s net worth had climbed proportionately.
The Kevin Era
The new CEO, Kevin, had come with tech experience.
He was previously at Microsoft and was driven to improve efficiency and integrate tech throughout the value chain.
Kevin scaled up customised drinks during his period.
He even navigated the brand through one of the toughest times in the global economy — the 2020 pandemic period.
At the same time, employee resentment was growing because of customised orders, poor equipment, and wage-related issues.
Kevin missed out on catching this development early.
Towards 2022, he announced his retirement.
The Starbucks board was faced with a mounting challenge of a rebellious workforce, and deteriorating trust.
Third Time
Desperate to find a good CEO who could restore the trust of its employees, they looked, once again, towards Howard Schultz.
He came back a third time as the CEO of Starbucks in April 2022.
This was going to be an “interim” role. In short, he was there till the board found the correct CEO for the job.
Howard moved quickly to restore order.
He suspended a share buyback plan and redirected $1 billion towards cafe equipment and employee benefits.
It worked.
A few months later, Laxman Narasimhan was hired as CEO. He shadowed Howard till March 2023, after which he took over the company’s reins fully.
The market-cap of the company was around $115 billion during this CEO transition.
Key CEO
Despite not holding a significant stake in the company, Howard Schultz remained a key figure at Starbucks for decades.
He became the firefighter who was brought back repeatedly — and brought back the company successfully each stint.
This story is an excellent example of promoters running their companies more effectively.
This is one reason why investors love keeping an eye on the promoters’ stake in the company. Although Howard himself didn’t change his stake much.
Starbucks’ challenges didn’t end in 2023 though.
Laxman Narasimhan left in only 17 months. Declining sales were cited as the main reason.
The next CEO was appointed in 2024, and news of his arrival was received with a 25% stock price increase.
A lot happened in that period.
That’s for another story altogether.
Quick Takes
+India’s wholesale inflation rose to 9.92% year-on-year in August compared to 9.78% in July. India’s retail inflation rose to 4.82% in August compared to 4.45% in July.
+The total revenue from allocated commercial coal mines was Rs 3,090 crore in FY25-26. The government expects annual revenue of around Rs 47,500 crore from the 147 coal blocks since 2020 across 9 states.
+SEBI issued a consultation paper, proposing changes to the Closing Auction Session (CAS), market timings and settlement rules for derivative contracts. It has invited public comments until 3 October.
+India’s unemployment rate fell to a 6 month low of 5.00% in August compared to 5.10% in July.
+The government introduced Merchant Discount Rate (MDR) of 0.4% on person-to-merchant UPI transactions above Rs 2,000 from 15 Oct. The MDR will be capped at Rs 300 for transactions above Rs 75,000. There will be no charges whatsoever on person-to-person UPI transactions.
+India’s trade deficit decreased to $26.86 billion in August compared to $31.98 billion in July.
+Passenger vehicle sales rose 36.5% year-on-year to 4.39 lakh units in August, according to SIAM data.
+The government approved increasing the EPFO wage ceiling to Rs 25,000 per month from Rs 15,000 per month. As a result, an additional 51 lakh employees could come under mandatory coverage.
+The government removed the requirement of certificate of registration for export consignments of up to Rs 3 lakh to lower entry barrier for MSMEs and first time exporters.
+The government said the possible US tariffs of 100% on Russian oil importing countries, including India, could impact bilateral ties. The bill is yet to be signed into a law.
+The government denied media reports alleging that MDR on UPI payments were introduced under any external influence.
+The government reduced windfall taxes on petrol exports to Rs 0.5 per liter (vs Rs 1.5 earlier); diesel, Rs 20 (vs Rs 25 earlier); ATF, Rs 15 (vs Rs 19 earlier).
+India’s textile sector exports rose 16.10% year-on-year to Rs 29,776 crore in August, from Rs 25,656 crore a year ago.
+India’s forex reserves fell $4.92 billion to $780.78 billion for the week ended 11 Sep.
+The government relaxed the existing 15 days’ stockholding limit on sugar for bulk consumers subject to conditions.
+The government approved multiple railway projects; a 38.21 km rail line worth Rs 493 crore near Maharashtra-Telangana border and doubling the 10.86 km Chouk-Karjat section worth Rs 497 crore.
+India’s net direct tax collections rose 12.96% year-on-year to Rs 12.12 lakh crore as of 17 Sep.
+India’s crude oil imports fell 11.17% in August to 19.01 million metric tonnes, from July: Petroleum Planning and Analysis Cell.
+Digital lending platform Social Worth Technologies (Fibe) got SEBI approval for IPO (fresh issue Rs 750 crore and OFS of 4 crore shares).
The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.
Team Groww Digest