Monday, January 7, 2008

Starbucks Replaces Chief Donald With Chairman Schultz (Update2)

By Mary Jane Credeur

Jan. 7 (Bloomberg) -- Starbucks Corp., the world's largest chain of coffee shops, replaced Chief Executive Officer Jim Donald with former CEO and Chairman Howard Schultz after the shares fell 42 percent last year.

Starbucks, based in Seattle, rose 8.8 percent in trading after U.S. markets closed.

Donald is leaving the company, Starbucks said today in a statement. Schultz was CEO of the chain from 1987 to 2000, taking it public in 1992 and expanding overseas.

Starbucks plans to slow the pace of U.S. store openings, and will close some underperforming cafes. Some money that had been earmarked for U.S. growth will be shifted to international expansion instead, the company said.

``You see the stock price get cut in half, something needs to change,'' said James Walsh, who helps manage $1.1 billion including Starbucks shares at Coldstream Capital Management in Bellevue, Washington. ``The buck does stop at the top.''

Starbucks is facing increased competition from McDonald's Corp., which plans to add specialty coffee counters in nearly 14,000 U.S. stores. The coffee chain in November cut profit and sales forecasts as U.S. customer visits fell for the first time after it raised prices 9 cents a cup.

Most of the company's problems were ``self-induced,'' Schultz said today on a conference call with analysts and investors.

Starbucks had 10,684 locations in the U.S. as of Sept. 30, part of more than 15,000 worldwide in 43 countries.

Starbucks rose $1.62 to $20 at 5:52 p.m. after the close of regular U.S. trading. Earlier, the shares gained 27 cents to close at $18.38 in Nasdaq Stock Market composite trading. The shares declined 29 percent since Donald took over in April 2005.

1 comment:

S said...

The Starbucks expansion relyed on moving to a fast food model. Increased throughput was supposed to mean increased profits. Problems arose when persons could no longer differentiate the "Starbucks" experience for other coffee experiences. By trying to streamline themselves they made themselves just like everybody else. Sears was not the first company to invent the cataloge, they just took it to new heights. That former powerhouse is a shadow of it's former self. They may have been the pioneers of mail order, but other companies started skimming the cream of the profits. Starbucks brought premiume coffee to all of America. Sure, it pioneered the concept but now everyone knows how to make a latte. Its no longer the unique supplier it once was. By cheapening the experience they have left themselves open to real competitors who can beat them on the bottom line. McDonalds (the ultimate cheapened experience)will severely cut into their market by undercuting the prices of their coffees. The new McCoffes are a small portion of the overall McDonalds product line. They can let the rest of their business carry the new coffee push. Starbucks will not be able to compete pricewise. I don't see Schultz being able to handle price pressures like that, especially since we are diving into a warm cozy recession (Already the way)