Coffee giant Starbucks is making a gradual transition to its incoming CEO, who will work alongside two-time Interim CEO and former CEO Howard Schultz.
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Transitioning from one chief to the next is one of the most challenging processes a company can undergo. Its continuity and the success of its new leader depend on getting it right. This requires careful succession planning well beyond candidate selection. Starbucks is taking a measured approach. When CEO Kevin Johnson retired in April, former CEO Howard Schultz returned for his second stint as Interim CEO. Schultz stepped down in 2000 after 14 years at the helm, only to return as Interim CEO in 2008 to steer the firm through the financial crisis. He was succeeded by Johnson nearly a decade later, in 2017.
Schultz is now preparing to hand over the reins of the world’s largest coffeehouse chain once again. But not just yet. The company announced his successor, Laxman Narasimhan, on September 1. Narasimhan will become CEO on October 1, but in name only. He will not take over as CEO proper until April 2023. Narasimhan said he is “at peace” with the succession arrangement. “Howard and I co-created this,” he said. “I will not have a P&L to worry about. No budget. No people who report to me. It’s kind of liberating. It’s a unique opportunity for me to apprentice with the iconic founder of an iconic company and an iconic brand.”
Narasimhan leaves behind the role of CEO at British consumer products giant Reckitt, which he joined in 2019. Analysts credit him with mounting an effective turnaround strategy at the company, selling underperforming units, and capitalizing on high consumer demand during the pandemic. Prior to Reckitt, Narasimhan held various executive roles at beverage behemoth PepsiCo, most recently Global Chief Commercial Officer. This followed nearly two decades at McKinsey.
“He’s a true operator and has the DNA of an entrepreneur,” said Schultz, emphasizing Narasimhan’s strengths in technology and supply chain management. Although Starbucks is twice as big as Reckitt in terms of revenues and market value, shareholders are “quietly encouraged” by his operating record, The Economist reports.
At Starbucks’ biennial Investor Day on September 13, Schultz and Chief Financial Officer Rachel Ruggeri presented the company’s new “reinvention” strategy. It includes using automation to speed up food and drink orders while relieving employees of some repetitive tasks. The retail chain also plans to accelerate its global expansion. This will largely focus on high-growth markets such as China, where it has 6,000 stores and is aiming for 9,000 by 2025. Starbucks is also leaning into its success in cold drinks.
Narasimhan was not involved in developing the strategy, but he will be charged with implementing it, while addressing a variety of challenges. Sales volumes in America were flat during the most recent quarter, with growth driven primarily by higher prices. Tough COVID-19 restrictions in China could hamper the company’s growth there. Further, building on Starbucks’ strength in customisable cold beverages will require investment. The costs of recruitment and retention could rise amidst ongoing labour shortages. Operating under the lingering influence of his illustrious predecessor, Narasimhan will likely need to push forward with innovations of his own.
