Starbucks's chairman Howard Schultz speaks during an interview with Reuters in Mexico City September 7, 2007. Starbucks Corp on Monday said its chief executive, Jim Donald, is leaving the company, effective immediately. Schultz, the coffee shop chain's founder and chairman, will take on the CEO role. REUTERS/Henry Romero
January 7, 2008
LOS ANGELES (Reuters) - Starbucks Corp announced on Monday the immediate return of founder Howard Schultz as chief executive and the slowing of an aggressive U.S. expansion in a shake-up that sent its battered shares up nearly 7 percent.
The move marks the return to daily management of the well-liked chairman, who is seen as the conscience of the company after he warned a year ago that Starbucks was losing its way.
Investors have nearly halved the value of the world's biggest coffee chain to $13 billion in the last year in the midst of weak U.S. sales growth and encroachment by competitors.
"The most serious challenge we face is of our own doing," Schultz, who replaces departing CEO Jim Donald, said on a conference call as the company also unveiled plans to close underperforming U.S. outlets and speed up international expansion.
"I am not going to use the economy, with you or our people, as an excuse," said Schultz, previously CEO from 1987 to 2000.
Concerns about slowing U.S. sales growth, soaring dairy prices, and competition from fast-food rivals such as McDonald's Corp have dogged Starbucks and Donald for some time.
"I'm not surprised that Jim's leaving," RBC Capital Markets analyst Larry Miller said. "We just met with them in December and he's normally a very energetic guy. He looked pretty deflated."
To improve shareholder returns, Starbucks said it would slow the pace of U.S. store growth to improve performance at existing locations by "re-igniting the emotional attachment with customers."
At the same time, it plans to speed up expansion outside the United States while increasing the profitability of those stores. To do that, the company plans to redeploy capital earmarked for U.S. store growth to the international business.
2007 MEMO
Schultz in February 2007 warned Donald and other executives that automatic espresso machines, bagged coffee and "cookie cutter" store designs had led to a sterility at the chain that had invited competition from fast-food companies and others.
"We have had to make a series of decisions that, in retrospect, have (led) to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand," Schultz wrote in the memo.
And in the last year competitors including McDonald's have substantially stepped up their coffee offerings.
Schultz said the company would give more specifics about its strategy on its January 30 quarterly earnings conference call.
Schultz bought Starbucks Coffee Company in 1987 and is credited with transforming the small Seattle outfit into one of the world's most recognized brands. It now has more than 15,000 locations, including more than 10,000 in the United States.
"Howard Schultz was instrumental in building this business from the ground up, so he is eminently qualified to be the CEO," Morningstar analyst John Owens said. "Starbucks has to justify the premium that they charge. I think Schultz realizes that."
Starbucks shares rose to $19.60 in extended trade after closing at $18.38 on Nasdaq.
(Additional reporting for Aarthi Sivaraman in New York and Karen Jacobs in Atlanta; Editing by Braden Reddall)
The move marks the return to daily management of the well-liked chairman, who is seen as the conscience of the company after he warned a year ago that Starbucks was losing its way.
Investors have nearly halved the value of the world's biggest coffee chain to $13 billion in the last year in the midst of weak U.S. sales growth and encroachment by competitors.
"The most serious challenge we face is of our own doing," Schultz, who replaces departing CEO Jim Donald, said on a conference call as the company also unveiled plans to close underperforming U.S. outlets and speed up international expansion.
"I am not going to use the economy, with you or our people, as an excuse," said Schultz, previously CEO from 1987 to 2000.
Concerns about slowing U.S. sales growth, soaring dairy prices, and competition from fast-food rivals such as McDonald's Corp have dogged Starbucks and Donald for some time.
"I'm not surprised that Jim's leaving," RBC Capital Markets analyst Larry Miller said. "We just met with them in December and he's normally a very energetic guy. He looked pretty deflated."
To improve shareholder returns, Starbucks said it would slow the pace of U.S. store growth to improve performance at existing locations by "re-igniting the emotional attachment with customers."
At the same time, it plans to speed up expansion outside the United States while increasing the profitability of those stores. To do that, the company plans to redeploy capital earmarked for U.S. store growth to the international business.
2007 MEMO
Schultz in February 2007 warned Donald and other executives that automatic espresso machines, bagged coffee and "cookie cutter" store designs had led to a sterility at the chain that had invited competition from fast-food companies and others.
"We have had to make a series of decisions that, in retrospect, have (led) to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand," Schultz wrote in the memo.
And in the last year competitors including McDonald's have substantially stepped up their coffee offerings.
Schultz said the company would give more specifics about its strategy on its January 30 quarterly earnings conference call.
Schultz bought Starbucks Coffee Company in 1987 and is credited with transforming the small Seattle outfit into one of the world's most recognized brands. It now has more than 15,000 locations, including more than 10,000 in the United States.
"Howard Schultz was instrumental in building this business from the ground up, so he is eminently qualified to be the CEO," Morningstar analyst John Owens said. "Starbucks has to justify the premium that they charge. I think Schultz realizes that."
Starbucks shares rose to $19.60 in extended trade after closing at $18.38 on Nasdaq.
(Additional reporting for Aarthi Sivaraman in New York and Karen Jacobs in Atlanta; Editing by Braden Reddall)
Hooray!!! And another golden age of Starbucks begins!!! Yes, there are people out there who have thoroughly enjoyed seeing this great company struggle. Those people are curmudgeons and complainers. Of the many, many companies in the U.S. this size, SBUX stands out as a community pillar. They have a conscience and give back to the community and the coffee farmers. The bandwagon is revving up its engines!!! Jump on board, wake up and smell the coffee!
ReplyDelete