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Starbucks Founder Schultz Returns As CEO in Shakeup

Reuters
Monday, 7 Jan 2008 | 5:14 PM ET

Starbucks said founder and chairman Howard Schultz will immediately take back the chief executive post from Jim Donald, as the U.S. coffee shop chain battles weakening sales.

The company's shares rose 6.6 percent in extended trade following the announcement.

The move comes as Starbucks shares have slid nearly 50 percent in the last year on concerns about slowing U.S. sales growth, soaring dairy prices, and competition from fast-food rivals such as McDonald's.

To improve shareholder returns, Starbucks also 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."

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AP
Starbucks

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.

"I am enthusiastic about returning to the role of chief executive officer for the long term," Schultz said in a statement.

"It is not surprising to see the shakeup," said John Owens, analyst at Morningstar. "Howard Schultz was instrumental in building this business from the ground up. So he is imminently qualified to be the CEO of the company.

"Starbucks is facing increasing competition from the fast-food sector, notable McDonald's and Dunkin' (Donuts)," Schultz added. "Those companies are competing more on price.
Starbucks has to justify the premium that they charge. I think
Schultz realizes that."

Earlier Monday, the Wall Street Journal reported that McDonald's is set to launch coffee bars with "baristas" serving cappuccinos and lattes, moving into direct competition with Starbucks.

McDonald's will install coffee bars at its 14,000 U.S. stores, incorporating theatrics similar to Starbucks' counters, displaying espresso machines and having baristas prepare drinks, the report said.

The report, citing internal documents from 2007, said the move will add $1 billion to McDonald's annual sales of $21.6 billion. McDonald's will also sell smoothies and bottled beverages, it said.

A McDonald's representative was not immediately available for comment.

Competition between the two companies has already been brewing, with McDonald's expanding its coffee offerings. Specialty coffee, along with breakfast items and lower-cost offerings have helped McDonald's outperform most other U.S. restaurant companies this year.

Starbucks, on the other hand, has been tempering its previous message that its perpetual expansion was resistant to blips in the U.S. economy. It has said that it plans to open 2,500 stores in fiscal 2008, down from a previous target of 2,600.

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