Schultz back in the saddle

Starbucks Corp replaced CEO Jim Donald with founder and Chairman Howard Schultz and said it would slow an aggressive US expansion in a shake-up that sent its battered shares up nearly 9 percent.

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 $13 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 on a conference call. "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 a disappointing less than 1 percent 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.

Concerns about slowing US sales growth, soaring dairy prices, and competition from fast-food rivals such as McDonald's Corp 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.

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.

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 commoditization of our brand," Schultz wrote in the memo.

Then and on Monday, Schultz acknowledged that he had been responsible for many of the decisions he lamented in the memo, but said he was the first to recognize that the company was moving away from its heritage.

Schultz bought Starbucks Coffee Company in 1987 and transformed 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.

Agencies

(China Daily 01/09/2008 page16)