Kevin Johnson is the new CEO at Starbucks and is making some important changes to Howard Schultz’s later-day initiatives for the company. For one, he’s diminishing the ambitious plans for opening 1,000 new Starbucks Reserve stores, where baristas would brew more expensive coffee (hard to imagine coffee more expensive than Starbucks’ is already), serve artisanal baked goods and mix cocktails, if desired by the customers – in other words, a glorified coffee pub.
As well, as 30 new Roastery stores, where baristas would do all of the above, plus roast the coffee specifically for the customer – a supra-glorified coffee bar. Johnson is dialing back on the Reserve and Roastery stores and will test whether six to ten Reserve stores can actually bring in the expected returns on investment before he moves forward to open additional stores. Johnson’s aim is to bring “more financial discipline to the business and return more cash to shareholders.” These were never in Shultz’s leadership repertoire – perhaps, originally when he originated Starbucks, but certainly not in the later years of his stint as CEO. Starbucks is currently under pressure to expand sales in a crowded coffee market – with Dunkin’ Donuts, McDonalds and others breathing down their necks, and offering reasonable coffee drinks at much lower prices. For years, Starbucks posted 5% sales growth or higher, but that began to turn down in 2016, when other companies joined the competition, and has not recovered. Customer traffic at Starbucks stores in the U.S. fell for the two past consecutive quarters. Shultz believed that the drop in foot traffic and sales coincided with the rise in online shopping, resulting in shoppers not going to the malls where many Starbucks stores are located. Shultz believed that the upscale Reserve stores would give customers a valid reason to leave home and take a coffee break – this, of course, assumes that people are at home – I think Shultz was confusing a different generation with the current one, where most people are at work during the day. And, frankly, in full disclosure, I have to say that I have never been to a Starbucks in a mall – principally, because I have never shopped in malls. Thus, my Starbucks visits are to neighborhood stores or to the conveniently-located drive-throughs in our city – of which there are now four such stores and always packed with customers. As are the neighborhood stores, where people, myself included, arrange to meet clients and conduct business while enjoying the Starbucks ambiance, which is different from that of the lower-priced rivals. I wouldn’t necessarily take a CEO client to Dunkin’ Dounts, for example, whereas, I would suggest that we meet at a neighborhood Starbucks. These are aspects of the business model that Starbucks actually “owns” by virtue of these aspects being unique to their brand and to most of their stores. The company should figure out how to take better advantage of this already existing “upscaleness” of the company – rather than opening the restroom doors to all vagrants and their syringes, as they apparently have done in some cities. That’s a certain way to kill the brand. I’d guess that Johnson, who comes to Starbucks from a stint as a Microsoft executive and has held a long-term seat on the Starbucks’ board, will be wise to these distinctions. His leadership suggests a turn for the better at Starbucks.