Starbucks won't need Schultz as CEO to keep its mobile dominance

Investors initially jeered Howard Schultz's decision to step down as Starbucks' CEO, though the famed mobile strategy that's helped spur the coffee chain's high performance over the past couple of years doesn't necessarily require the company's founder to be in its biggest office.

Schultz, who is one of Starbucks' co-founders, will step down as CEO in April 2017 to focus on expanding Starbucks' high end Roastery and Tasting Rooms globally, as well as setting the chain's "social impact agenda," which will include sending employees to college and hiring veterans. Kevin Johnson, Starbucks' chief operating officer and a long-time technology executive, will take over as CEO.

"The strategy is to make sure that Starbucks is a place where people want to go, not just because of the product but also because of the environment in which the product is service," said Rick Oglesby, president of AZ Payments Group. "Technology is a key part of that."

Michael Nagle/Bloomberg

Over the past couple of years, Starbucks' mobile app has consistently put other mobile wallets to shame. In a market in which only about 1% of in-store payments are executed by mobile phones, Starbucks last month reported 25% of its U.S. in-store transactions are mobile. It also reported its line-busting app Order and Pay accounts for up to 20% of the volume at 600 of its stores, at a time when order ahead apps are still mostly in pilot for other retailers.

This mobile momentum has helped Starbucks' business exceed most analysts' expectations. The performance is certainly tied to Schultz, who changed his duties about three years ago to focus more on mobile transactions and marketing programs, but it was not his work alone.

"Three years ago we sensed the early signs of a seismic shift toward mobile and online retailing," Schultz said during a Thursday conference call to announce the executive changes.

Schultz's altered responsibilities in early 2014 coincided with Starbucks' explosive growth in mobile, and also accompanied Starbucks' broader recovery from the 2008 recession. Starbucks was in a slump in 2008, and Schultz returned at that time to resume the CEO role he had left in 2000.

Partly because of Schultz's past success, his latest move spooked investors—Starbucks stock quickly fell more than 3% and both Schultz and Johnson spend part of Thursday evening's conference call calming investors worried about Johnson's relative lack of experience in retail—Schultz at one point mentioned his and Johnson's office were next to each other, and reminded investors that Schultz is not leaving the company entirely. He also said Johnson has been involved in the chain's broader retail strategy over the past couple of years.

Johnson has also been on Starbucks' board since 2009, the year Starbucks launched its first mobile payment app.

Johnson's background—he has done stints as CEO of Juniper Networks and held several senior positions at Microsoft, and he's also played a key role in Starbucks' mobile success—suggests the company's mobile innovation should remain a focus. Johnson and Schultz said they would provide a detailed plan during an investor conference scheduled for Dec. 7.

"By putting a career technologist at the helm of a retail store, Starbucks is making a bold move that indicates technology is one of the most important aspects of its strategy, if not the most important," Oglesby said.

Starbucks' prowess in mobile hasn't necessarily been at the expense of other retailers; Starbucks had a short-lived partnership with Square and mentioned the possibility of sharing its technology with other retailers. The original creators of the Starbucks mobile app went on to found a company called CardFree, which designed the successful Dunkin Donuts app.

Its executive changes aside, Starbucks will likely also retain its unique position among retailers as a mobile titan given its distinct business model.

"Few categories have consumers visit on a daily basis or more frequently," said Tim Sloane, vice president of the emerging technologies advisory service at Mercator. "So is replication possible? Yes. We could certainly see a high end fast food restaurant that delivers gourmet meals in minutes, but department stores have a different set of problems. You can't get a cup of hot coffee or a hot meal through the mail."

The primary issue for the majority of other categories is to win consumers as they shop on their desktops, tablets and smartphones and in retail malls and stores, Sloane said.

"The omnichannel priority isn't about ordering; it's about grabbing the consumer's attention just as the consumer discovers the need — or better just before they discover the need — for an item from that category," Sloane said. "Then keep that customer totally occupied so they don't wander to Amazon."