With 15,000 stores in more than 40 countries, the coffeehouse phenomenon didn’t look like it needed a break - until recently.
The Seattle-based company sacked its CEO Jim Donald earlier this month and reinstalled its chairman and former long-time chief, Howard Schultz, back at the helm.
Donald’s sacking was inevitable. The coffee brand saw its shareprice tumble by nearly 50 per cent in 2007 due to lower consumer demand and rising food costs, razing its value to US$13 billion.
Not one to dodge the bullet, the returning CEO is facing his troubles head-on. “The most serious challenge we face is of our own doing. I am not going to use the economy as an excuse.”
Schultz, who bought Starbucks in 1987 and oversaw its meteoric rise in the 1990s, will now put in place a rescue plan that will see a slowing of US store openings and the closure of underperforming outlets.
The move is expected to enable Starbucks to renew its focus on the performance of individual stores. It will also look to grow profits outside the US by redeploying investment capital originally earmarked for the US overseas.
In Asia-Pacific, the coffee giant lumbers on. It sees China as its next biggest market, and annual sales in Beijing have grown steadily by 30 per cent each year. However, a PR nightmare last July saw the brand close an outlet in Beijing’s Forbidden City after CCTV anchorman Rui Cheng Gang led a campaign decrying the brand as a blight on the country’s cultural landscape.
Competition is brewing in the region as other brands like Coffee Bean & Tea Leaf (with a 400-store Asian franchise) and McDonald’s as it muscles in with McCafé.
Meanwhile, a memo leaked on the internet in March 2007 by Schultz revealed setbacks that “have led to the watering down of the Starbucks experience” and “the commoditisation of our brand”. The problem may be of venti proportions, as Shultz revealed how “some people call our stores sterile, cookie-cutter and no longer reflecting the passion our partners feel about our coffee”.
Fact Box
-Howard Schultz returns as CEO in 2008 after the company’s value halves.
-With over US$6.3 billion in annual sales, the coffee brand is one-third the size of Pepsi and Coke and boasts higher sales per square foot than McDonald’s.
-In 2003, Starbucks Coffee International opens its 1,000th Asia-Pacific store in Beijing.
-Founded in 1971, Starbucks now has 15,000 stores globally and serves over 40 million customers a week.