Schultz Back At Starbucks: Can He Stir Up The Coffee Giant?
He's back 'for the long term.' The man who commercialized the gourmet cafe brand and convinced the world to pay $5+ for a cup of specialty coffee is returning to the CEO seat. Howard Schultz is once again the CEO at Starbucks and says that he plans to recaffeinate sales and perk up the coffee giants' sagging stock price.
The announcement comes on the same day that McDonalds' reportedly declared its entrance into the specialty coffee business (per the WSJ.)
The new strategy at Starbucks is to make sure that the "level of differentiation" between SBUX and its competitors (from behemoth McDonalds to small beans Peets Coffee) is clear. Schultz emphasized that he's going to "fix" the internal business at Starbucks which had become bureaucratic and "soft" under recent leadership. He did not blame the recent CEO Jim Donald (who steps down today) for misdirection.
Schultz admitted he himself bears some responsibility for the underperformance of Starbucks since he's has been involved as chairman. Much of Schultz's language last night echoed his musings from the now famous February 14th, 2007 memo in which he called for re-energizing everything from the workers to the in-store experience.
While rising commodity costs and macroeconomic pressures are not helping Starbucks' business, Schultz said that many of Starbucks' problems are self-made. "I'm not going to use the economy as an excuse," Schultz said. He went out of his way to make the point that SBUX's problems have been ongoing and precede recent holiday sales results.
What's he going to do? Schultz says he'll slow the pace of U.S. store openings and close some underperforming locations to renew the focus on “human economics.” Translation: retraining baristas, redesigning store space and hurrying up wait times.
Schultz also admitted the Starbucks has been cannibalizing its own business with too many store locations. (Who hasn't laughed at the fact that there's a Starbucks every 3 blocks in most major cities?!) While Schultz didn't name names in citing new competition, he did say at "new levels of convenience and price competition" require Starbucks to have a new strategy.
International growth is where Schultz is focused. While he didn't provide figures, Schultz did indicate that he plans to reallocate capital from planned U.S. store openings to create more of an international presence and stop the cannibalization of current U.S. stores. The move will increase free cash flow.
Starbucks has been active in share repurchases and it plans to continue to look at different avenues to "increase shareholder value." The financial results and plans will be discussed in detail on January 30th.
Can bringing back "Daddy" revitalize sales? Gap tested it (bringing back the Fishers), Apple seems to be succeeding with it. But will Schultz keep the double-whip non-fat soy latte on its pedestal and away from new entrants like the Golden Arches? We'll have to wait for the answer.
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