BUSINESS NEWS

Former Starbucks CEO Howard Schultz to Return as Chain Faces Union Push, Rising Costs


Howard Schultz

is returning to lead

Starbucks Corp.


SBUX 5.16%

for a third time, saying the company he helped become the world’s largest coffee chain needs to reinvent itself once more.

Mr. Schultz, who built Starbucks from a handful of Seattle-based coffee shops to a global giant before retiring as executive chairman in 2018, will take over as chief executive again in April as the chain confronts rising costs, challenges in its Chinese and Russian markets, and an expanding unionization push among U.S. baristas. The company told investors Wednesday that it aims to improve relations with its workers.

“Although I did not plan to return to Starbucks, I know the company must transform once again to meet a new and exciting future where all of our stakeholders mutually flourish,” Mr. Schultz said.

Starbucks last year recovered in many markets from a pandemic-driven sales slowdown and aims to open more than 20,000 new cafes around the world by the end of the decade, while shifting more business toward drive-throughs and other to-go formats.

Starbucks said Wednesday that

Kevin Johnson,

the company’s chief executive for the past five years, will step down as CEO and board director as of April 4. He will continue in an advisory role to the company and its board through September.

Mr. Schultz, who preceded Mr. Johnson and presided over much of the chain’s expansion, will serve as interim CEO and will return to the company’s board, Starbucks said. The company didn’t immediately say Wednesday whether Mr. Schultz’s board role will be temporary. As interim CEO, Mr. Schultz will run Starbucks’s day-to-day operations and steer its innovation efforts, while helping to select and bring on board the chain’s next permanent chief executive, the company said.

Starbucks shares rose 5.2% Wednesday to close at $87.41. Wall Street analysts said a new CEO could improve investor sentiment toward the stock, which has trailed other restaurant-company shares in recent months.

At Motley Fool Asset Management, a fund that owns about 146,660 Starbucks shares, investment analyst

Ben Wong

said his firm is monitoring the unionization campaign for potential reputational damage to the chain. “With Howard stepping back in, that gives us more confidence. These issues are complex,” Mr. Wong said.

Kevin Johnson has led Starbucks for five years.



Photo:

Ryan Henriksen for The Wall Street Journal

Starbucks was one of the first U.S. restaurant chains to feel the pandemic’s impact, in the company’s China market in early 2020. As it closed cafes during Covid-19 lockdowns, Starbucks’s same-store sales fell for the first time in more than a decade.

In June 2020, the company sped up plans to permanently close hundreds of U.S. stores to pave the way for more to-go and drive-through locations. Starbucks recorded $29.1 billion in sales for its most recent fiscal year, up from $22.4 billion in 2017 after Mr. Johnson took over.

Starbucks’s shares were down 24% in the past 12 months through Tuesday’s market close, while a Standard & Poor’s index of restaurant stocks had declined 5% during the same period. Wall Street analysts have said that rising wage, training, supply and other costs are likely to weigh on Starbucks’s profit in the near term.

Mr. Johnson, Starbucks’s departing CEO, has said that spending on more wages and benefits will improve the company’s long-term performance.

Starbucks trails only McDonald’s as the largest restaurant chain by market capitalization. WSJ’s Heather Haddon explains why mobile technology has become a business priority for Starbucks and garnered it a loyal customer base. Photo: Stanislav Kogiku/Zuma Press

Mr. Schultz, 68 years old, served as Starbucks CEO from 1987 until 2000, and returned in 2008 as the company sought to improve its performance. Mr. Schultz, who remained on Starbucks’s board until 2018 and flirted with a run for U.S. president as an independent in 2019, currently heads his family’s foundation and is involved in philanthropy.

Starbucks board Chairwoman

Mellody Hobson

said Mr. Schultz isn’t expected to stay permanently. She said she expected Mr. Schultz to maintain the company’s culture as it transitions to a new leader, and to voice his opinions.

“We want the full deal,” said Ms. Hobson, who has described Mr. Schultz as a friend and mentor.

Mr. Schultz said that he felt a responsibility to help when called to return to Starbucks.

“With the backdrop of Covid recovery and global unrest, it’s critical we set the table for a courageous reimagining and reinvention of the future Starbucks experience for our partners and customers,” Mr. Schultz said.

Starbucks said in a filing Wednesday it will pay Mr. Schultz a dollar in base salary and allow him to participate in the company’s employee-benefit plans. He won’t receive other compensation or benefits, Starbucks said.

Starbucks has faced the most serious U.S. unionization drive in its history in the past year as some workers have agitated for better pay and conditions. Mr. Johnson has appealed to workers to let the company maintain its direct relationship with them. More than 130 of Starbucks’s 9,000 U.S. company cafes have petitioned to unionize, and since late 2021, six locations have voted for representation by the Starbucks Workers United union.

Mr. Schultz traveled to Buffalo last year to address Starbucks workers in person before the first cafes voted on unionization. During a roughly hourlong address, Mr. Schultz spoke about the chain’s founding and its modern-day operations.

Several Starbucks investors, together representing more than $1 billion of Starbucks shares, asked the company Tuesday to cease any antiunion communications with employees, and adopt a policy of neutrality toward workers seeking to organize. The effort was led by Trillium Asset Management, which says it focuses its investing on environmental, social and governance matters.

Starbucks’s Ms. Hobson said Wednesday that the company recognizes baristas’ right to organize and that it is negotiating with Starbucks Workers United in good faith. She said the company couldn’t commit to avoiding direct communications with its employees on the subject.

Starbucks’s sales have recovered from the pandemic, but costs could weigh on profit in the near term.



Photo:

Richard B. Levine/Zuma Press

“We want a constructive relationship with the union,” Ms. Hobson said.

Starbucks said last year it would boost barista pay. A wage increase now under way, along with two previously announced increases, were slated to constitute an additional $1 billion in spending on employees. The company’s stock fell last October after Mr. Johnson told investors that the most recent pay increase would depress profit margins this year.

Mr. Johnson, 61 years old, leaves Starbucks after seven years at the chain, serving as chief operating officer before taking over as CEO in April 2017. Mr. Johnson previously was a technology executive at

Microsoft Corp.

and

Juniper Networks Inc.,

and joined the Starbucks board in 2009. He was recruited to Starbucks by Mr. Schultz to act as a top lieutenant in 2015. Within two years, Mr. Schultz stepped down and Mr. Johnson became CEO.

Starbucks shareholders rejected the coffee company’s executive-compensation proposal last year, after proxy-advisory firms recommended shareholders vote against it. The compensation proposal included a one-time bonus to Mr. Johnson of $1.86 million.

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Starbucks’s board had agreed in late 2019 to pay Mr. Johnson a three-year retention bonus of as much as $50 million if the company’s stock reached established targets, and he served through the end of Starbucks’s 2022 fiscal year. Starbucks said the award will be determined this September, and currently didn’t expect to pay it based on the performance so far.

Starbucks shareholders on Wednesday approved the company’s advisory vote on pay, following changes the chain’s board made to executive performance awards.

Mr. Johnson first signaled to company directors around a year ago that he was thinking about retiring, and hoped to do so when the pandemic wound down, Ms. Hobson said. His decision to leave was his own, not the result of any board or outside push, she said.

“It’s been deliberate,” Ms. Hobson said in an interview Tuesday.

Write to Heather Haddon at heather.haddon@wsj.com

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