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Starbucks has replaced CEO Jim Donald with founder and chairman Howard Schultz and says it will slow an aggressive US expansion in a shake-up that sent its battered shares up nearly 9 per cent.
The move marks a return to daily management for Schultz, who is seen as
the conscience of the company and warned executives a year ago that Starbucks was losing its way.
Schultz, who was chief executive from 1987 to 2000, said Starbucks would close underperforming US outlets and speed up international growth.
Investors have nearly halved the value of the world's biggest coffee chain to US$13 billion ($16.87 billion) in the last year in the midst of weakened US sales growth.
"The most serious challenge we face is of our own doing," Schultz said. "I am not going to use the economy, with you or our people, as an excuse."
In August, Donald said a pullback in consumer spending due to a weakened economy was one reason why customer traffic rose less than 1 per cent in the previous quarter.
Donald became Starbucks CEO in 2005, having joined in 2002 as president of its North American division and presumed next CEO. Prior to Starbucks, he was CEO of supermarket chain Pathmark.
Concerns about slowing US sales growth, soaring dairy prices, and competition from fast-food rivals such as McDonald's have dogged Starbucks for some time.
One question is how the return of Schultz, who has always been an active chairman, will change the company.
"I think investors will be more excited about Starbucks' slowing store growth than the change in management," RBC Capital Markets analyst Larry Miller said.
As well as slowing the pace of US store growth, Starbucks said it would improve performance at existing locations. It plans to speed up expansion abroad, and increase the profitability of those stores by redeploying capital earmarked for US store growth to the international business.
On the conference call, some investors voiced frustration with the lack of specifics, something Starbucks said would be addressed later this month during its quarterly earnings announcement.
In a leaked memo last February, Schultz 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 commoditisation of our brand," Schultz wrote in the memo.
Then and yesterday, Schultz acknowledged that he had been responsible for many of the decisions he lamented in the memo, but said he was the first to recognise the company was moving away from its heritage.
"Howard Schultz was instrumental in building this business from the ground up, so he is eminently qualified to be CEO," Morningstar analyst John Owens said. "Starbucks has to justify the premium that they charge, Schultz realises that."
- REUTERS
