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Starbucks: Out with the New, in with the Old
January 12, 2008 03:10 PM
by
findingDulcinea Staff
Starbucks founder Howard Schultz returns as the company’s CEO, a role he relinquished to Jim Donald in 2000. The company needs to boost sagging sales and stock prices.
30-Second Summary
Howard Schultz is widely regarded as the man responsible for making Starbucks the world’s largest chain of coffee shops. But over the past 52 weeks, Starbucks share performance has dropped by 48 percent.
Now Schultz is back in his former position as the company’s chief executive.
“I have said for 20 years that our success is not an entitlement and now is proving to be a reality. Let’s be smarter about how we are spending our time, money and resources,” Schultz said, in a Jan. 7 company conference call.
Several business analysts have speculated on the reasons behind the company’s recent stock market slump.
Restaurant analyst Howard Penney told The Guardian that the store owes many of its headaches to its rapid growth.
"They have to slow their growth—they've been growing far too fast," Penney said. "Act one—a great concept starts and grows, becomes a global behemoth and ultimately grows too fast."
Financial analyst Nicole Miller of investment bank Piper Jaffray told NPR that Starbucks' high prices have driven customers away: “What was once considered sort of an everyday convenience has really become a luxury for a lot of people now.”
The coffee giant is also feeling pressure from its café competitors. Dunkin' Donuts and McDonald's are both appealing to broader java audiences by offering more upscale coffee.
Now Schultz is back in his former position as the company’s chief executive.
“I have said for 20 years that our success is not an entitlement and now is proving to be a reality. Let’s be smarter about how we are spending our time, money and resources,” Schultz said, in a Jan. 7 company conference call.
Several business analysts have speculated on the reasons behind the company’s recent stock market slump.
Restaurant analyst Howard Penney told The Guardian that the store owes many of its headaches to its rapid growth.
"They have to slow their growth—they've been growing far too fast," Penney said. "Act one—a great concept starts and grows, becomes a global behemoth and ultimately grows too fast."
Financial analyst Nicole Miller of investment bank Piper Jaffray told NPR that Starbucks' high prices have driven customers away: “What was once considered sort of an everyday convenience has really become a luxury for a lot of people now.”
The coffee giant is also feeling pressure from its café competitors. Dunkin' Donuts and McDonald's are both appealing to broader java audiences by offering more upscale coffee.
Headline Links: Donald out, Schultz in
Starbucks announced on Monday, Jan. 7, that company chairman Howard Schultz had replaced the recently fired CEO of the company, James Donald. After the announcement, Starbucks shares on Wall Street increased by 10 percent. When Schultz left as CEO in 2000, Starbucks had 3,500 stores, whereas today it has over 15,000.
Source: The Seattle Times
In an open letter to customers, Chairman and CEO Howard Schultz said that he was taking on the role of CEO to ensure that they would receive the “Starbucks experience” they have come to expect from the chain.
Source: The official Web site of Starbucks
Analysis: What is the problem and can it be fixed
Grew too quickly
Howard Penney, a restaurant analyst, explained to The Guardian’s Andrew Clark why and how Starbucks grew too fast for its own good. "They have to slow their growth - they've been growing far too fast … Act one - a great concept starts and grows, becomes a global behemoth and ultimately grows too fast. It takes two or three CEOs to realize they've hit a level of maturity that means they've got to adjust," Penney said.
Source: The Guardian
Too expensive
National Public Radio questions whether coffee at Starbucks, which has seen a price increase due to higher oil costs for coffee lids, has become too expensive for consumers to bear. Financial analyst Nicole Miller of investment bank Piper Jaffray, tells NPR, “What was once considered sort of an everyday convenience has really become a luxury for a lot of people now.”
Source: NPR
Audience appeal
Theresa Howard of USA Today examines the difference between the ad campaigns of Starbucks and Dunkin' Donuts. According to Howard, the two market to very different audiences: Starbucks is upscale while Dunkin' Donuts is for the average Joe or Jane.
Source: USA Today
Can Schultz turn it around?
Herb Greenberg of the Market Watch blog agrees with Howard Schultz that Starbucks is not a broken brand, but it does have a lot of work to do to turn itself around. “I have said for 20 years that our success is not an entitlement and now is proving to be a reality. Let’s be smarter about how we are spending our time, money and resources,” Schultz said in a company conference call on Jan. 7.
Source: Market Watch
Business Week questions how much Schultz’s leadership can actually help the company: “Perhaps the feeling is that by making Schultz CEO, he’ll play a role in operational decisions that could have a long-term impact on the brand … still, the overarching strategy Starbucks laid out in today’s announcement … sounds incredibly similar to what the company has been telling Wall Street over the past few months under James Donald.”
Source: Business Week
Related Topics: McDonald’s café and Schultz’ leaked e-mail
The Wall Street Journal explains that McDonald's, which has almost 14,000 locations in the United States, plans to add cafés to their restaurants. McDonald’s will sell high-end coffee, which could cut into Starbucks’ market. The Journal compares the share performance of the two companies over the past 52 weeks, finding that McDonald’s was up 31 percent and Starbucks was down by 48 percent.
Source: The Wall Street Journal
In March 2005, an email sent by Starbucks Chairman Howard Schultz leaked to the public. The email revealed Schultz’s concern that the company was opening too many stores, and had abandoned its original “romance and theatre” by trading manual espresso machines for automatic ones.
Source: The Wall Street Journal
Reference Material: Starbuck shares up
Although individual shares of Starbucks had been below 20 dollars for most of December 2007, as of Jan. 8, 2008, Starbucks' price per share had risen to just over 20 dollars.
Source: Market Watch
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