SBUX Starbucks Corporation

New captain Kevin Johnson is tasked with turning around the coffee giant's fortunes at home

By Julie Jargon 

Kevin Johnson, the tech-industry executive who officially takes over Monday as the chief executive of Starbucks Corp., inherits a company facing its most prolonged slowdown in the U.S. since the recession.

For more than six years, Starbucks had been posting quarterly same-store sales growth of 5% or greater in its biggest market. But that changed last year when it began missing analysts' sales targets. The company last year blamed everything from uncertainty about the outcome of the presidential election and weak consumer confidence to disruption brought on by changes in its loyalty program.

Then, in January, the coffee chain said a mobile-order app created to reduce long lines at the cash register caused congestion at the drink handoff area of some cafes -- leading customers to forgo a Starbucks run upon seeing crowded stores and causing the chain to miss sales expectations again. The chain lowered its revenue forecast for the year.

As Howard Schultz, the CEO who built Starbucks into a global coffee chain, steps down to focus on developing luxury coffee shops within the company, Mr. Johnson has to make good on Starbucks' promise to restore the U.S. business to its historic growth levels of at least 5% increases in same-store sales.

Starbucks shares fell sharply following the announcement of the CEO change, but they soon returned to where they had previously been trading. Some Wall Street analysts have expressed reservations about whether Mr. Johnson has the right background to steer a large, global retail business, but others have said his time running daily operations at Starbucks has prepared him well.

The 56-year-old former Microsoft executive and Juniper Networks Inc. CEO has been on the Starbucks board since 2009 and has served as the coffee chain's operating chief for the last two years, before being tapped to take the top job late last year.

The WSJ sat down with Mr. Johnson in his office adjacent to Mr. Schultz's to talk about the CEO handoff, the slowdown in U.S. sales and why he doesn't plan to back away from taking a stand on social issues, despite recent backlash from a refugee-hiring announcement.

Here are edited excerpts of the interview:

WSJ: How much autonomy will you have as CEO?

Mr. Johnson: Howard has been clear that I'll be the CEO, so that means the buck stops with me, but I am also smart enough to know that you collaborate with people to get their input on things. So will I talk to Howard about things that I am noodling on? Of course.

WSJ: Transactions were down in the last quarter due to congestion caused by customers picking up their mobile orders. What are you doing to fix that?

Mr. Johnson: In some of those stores we've added a dedicated barista who's greeting those customers and handing them their food and beverage as they come in the door. That's alleviating some of the congestion. We've also launched some new technology that gives a customer who orders on their mobile app a notification when their food and beverage is ready.

WSJ: Even before the latest issue with the mobile orders, growth in the U.S. had been slowing. What is behind that?

Mr. Johnson: Well, I think if you look at the growth that we've experienced over the last two years, we were posting very high comp-store sales the prior year, so one of the factors is we're up against significant growth from the prior year. The entire restaurant industry is seeing a slowdown in growth, so there's probably some that's related to that. We're very optimistic for the long term, but it requires continuous innovation.

WSJ: You're trying to get bigger into lunch with a new menu of freshly made food launching in Chicago this month. Why lunch?

Mr. Johnson: We already have a significant number of customers coming to Starbucks at lunch for a beverage. Our thought is, if we have fresh food that pairs well with the beverages customers are buying at lunch, we'll sell more food items at lunch.

WSJ: How much more room is there to expand in the U.S.?

Mr. Johnson: A lot of growth opportunities might be in less urban places, more suburban areas, the Midwest. Over the next five years we've projected building 12,000 additional stores globally, taking us to 37,000 stores. More than half of those stores will be in the U.S. and China.

WSJ: When do you think China will overtake the U.S. as your largest market?

Mr. Johnson: Not in the next five years, but you could do the math and say in the next 10, 15 years.

WSJ: Howard has never been shy about voicing his opinion on social issues, and his recent pledge to hire refugees was met with backlash. Do you think taking a stand on certain social issues could hurt the company?

Mr. Johnson: If it's driven by our principles, I think it helps the company. Many of our veterans had worked with interpreters in Iraq and Afghanistan that are now refugees and so we saw that as very much aligned to the work we did hiring veterans. It helps us attract great talent, but it also shows that we care about helping create opportunities for people.

WSJ: Do you think you'll be as public as Howard when it comes to speaking out on issues?

Mr. Johnson: I expect him to continue to be a spokesperson for us but that doesn't mean that I won't be playing a role in that.

WSJ: Why not just sell coffee?

Mr. Johnson: One of the reasons people come to work at Starbucks is because we stand for something. It's about human connection and having a sense of humanity. We think that's part of what makes Starbucks a special place that both partners and customers want to be associated with. And frankly, I think there should be more publicly traded companies that also think about not only creating shareholder value but how to contribute in a positive way to society.

Write to Julie Jargon at julie.jargon@wsj.com

(END) Dow Jones Newswires

April 03, 2017 02:47 ET (06:47 GMT)

Starbucks (NASDAQ:SBUX)
Historical Stock Chart
From Mar 2024 to Apr 2024

Starbucks (NASDAQ:SBUX)
Historical Stock Chart
From Apr 2023 to Apr 2024