NEW YORK ( TheStreet) -- The surprising departure of a longtime, top Starbucks (SBUX - Get Report) lieutenant has brought back to life one big question for investors in the coffee giant: Who will succeed larger-than-life founder and CEO Howard Schultz?
On Thursday, Starbucks announced that COO Troy Alstead, a 23-year veteran of the company and its former CFO, would be taking an extended, unpaid leave from the coffee king. "He and Howard have been talking about this for some time," Starbucks spokesman Jim Olsen told TheStreet. Olsen characterized Alstead's decision to exit as a "break" and a "very personal decision" that was also entertained back in 2008. Alstead's last day in the COO role will be March 1, 2015, and he will be on the company's Jan. 22 earnings call to articulate to investors, along with Schultz, the transition plan.
It was just about one year ago that Alstead was promoted to COO, a move seen by many as a precursor to succeeding Schultz as Starbucks' next CEO. In the new capacity, Alstead gained responsibility for overseeing the day-to-day operations of Starbucks. All of Starbucks division chiefs, along with its CFO, were shifted to reporting to Alstead instead of Schultz.
Schultz continuing to be CEO, but not having to focus on day-to-day operations, has allowed him to turn his sights to reimagining the company he founded through new store concepts and expanded mobile payment options. Since the leadership shift in Jan. 2014, Starbucks has had unveiled two significant ideas likely inspired by Schultz's ability to take a step back and ponder the future of the company -- mobile order and pay and Starbucks Reserve Roastery and Tasting Room.
Mobile order and pay will be rolled out city by city this year, allowing customers to place an order on their mobile device and pay for it before they arrive in their local Starbucks. Starbucks Reserve Roastery and Tasting Room is meant to be an upscale version of your neighborhood Starbucks, with the first location having opened in Seattle last December. It's part of Starbucks' grander plan to open upscale cafes in over 100 locations globally in the next five years.
With the exit of Alstead, Starbucks must now signal to Wall Street the heir apparent to the 61-year-old Schultz. The lead candidate to assume Alstead's vacated COO position would be group president, U.S., Americas, and Teavana, Cliff Burrows. Burrows, who joined Starbucks in 2001 as managing director of the U.K., is responsible for all of Starbucks operations in the United States, Canada and Latin America. He is also overseeing the expansion of Teavana retail stores and the integration of Teavana into Starbucks retail stores.
The architect of Starbucks' mobile payment platform, chief digital officer Adam Brotman, is a dark horse candidate for Alstead's seat as the company is in the midst of rolling out its new mobile ordering system. Promoting Brotman, however, would risk a successful roll-out of a technological system designed to fundamentally change how people interact with Starbucks' global store base; Brotman also lacks the store management experience of Burrows.
Issues with choosing the right successor for Schultz have famously gone awry in the past, and is a risk to Starbucks' future performance that many on the Street may have forgotten about.
In 2000, Schultz stepped aside as CEO to focus on strategy, handing over the position to then president and COO Orin Smith. Smith, a long tenured Starbucks exec before his CEO appointment, went on to retire in 2005 after five years atop the coffee retailer. The keys to the kingdom were handed over to former supermarket executive and outsider Jim Donald, who the board ousted in 2008 due to subpar financial performance. Starbucks shares lost about 29% of their value during his tenure.
At the time, most investors agreed that the too-rapid opening of stores in the U.S., along with a loss of the Starbucks experience inside the stores, were to blame for the weakened financials. Schultz, who said the company had lost its passion and romance for selling coffee in an infamous Feb. 2007 memo that went viral, triumphantly returned to the company as its CEO in 2008. Starbucks immediately slowed its expansion in the U.S. and closed some stores there to fix its operations, and accelerated the number of openings in places like China, Korea and Canada.