Seattle: Over the last two decades, Howard Schultz took Starbucks Corp. from a handful of quaint coffee houses and turned it into one of the world’s most ubiquitous and popular brands.
With the company faltering amid a sagging economy and increasingly fierce competition from cheaper rivals, his new job is to turn things around slowing growth in the US and closing some shops, ramping up expansion overseas, streamlining management and focusing more on things such as new drinks and other products that will draw customers back.
It’s a tall order no, make that a double-tall, but most analysts seem to think he’s up to it. “Much of what’s happened to Starbucks over the last year has been economic in nature. That said, the company could use some reinvigoration, and if anyone’s going to reinvigorate the company, it’s going to be Howard,” said Sharon Zackfia, an analyst with investment firm William Blair & Co.
After more than a decade of impressive steady growth, Starbucks shares have been in free-fall over the past year, plunging more than 50%. But on Monday, when Starbucks fired Jim Donald, CEO and gave the job back to Schultz, the company’s chairman, the stock jumped 9% in after-hours trading. The shares ended Tuesday’s regular trading at $19.86, up $1.48 or 8.1% from Monday’s close, despite the overall down market.
Can Starbucks re-energize itself, given increasing competition and rising price of milk/coffee beans
In a research note Goldman Sachs analyst Steven Kron said the company faces factors beyond its control, including stiffer competition and rising prices for commodities such as milk and coffee beans.
Starbucks is waiting until it reports first-quarter earnings 30January to announce details on how much growth will slow down in the U.S. and pick up overseas, but Schultz said international expansion will be crucial to the company’s recovery.
“There continues to be an enormous opportunity for us internationally, and we are just at the beginning of capitalizing on it,” Schultz, 54, told analysts in a conference call Monday.
Starbucks’ first store outside North America opened in Tokyo in 1996, when the company had less than 1,000 stores. Today, it has more than 15,000 stores worldwide, nearly one-third of them in 42 countries outside the US.
Schultz said Starbucks has no plans to stray from its long-term target of having 40,000 stores, half of them overseas. He didn’t specify which countries show greatest potential for growth, but said U K, Canada, and Mexico have been particularly strong. He has previously said he holds high expectations for China, one of its biggest markets with more than 420 stores.
Starbucks has laid a lot of groundwork in China, and its stores there make more money than those in the US, Zackfia noted. Even though Starbucks’ coffee remains a high-priced item in China, she said “the sheer numbers of people make it an enormous opportunity.”
Brazil, Russia and India hold huge potential
Other markets with huge potential include Brazil and Russia, which got their first Starbucks’ stores last year, and India, a market the company has been working to enter.
Dan Geiman, an analyst with the brokerage firm McAdams Wright Ragen, predicted Starbucks will boost ownership stakes in its overseas joint venture partnerships, which would help it improve profit margins.
Despite the cheaper premium brew that McDonald’s Corp. and Dunkin’ Donuts have added to their menus, Schultz and some analysts don’t believe such competition is that big a threat.
“I think people would be hard-pressed to find quantitative evidence that competition has been an issue,” Zackfia said. “At the end of the day, Starbucks has always had lower-priced competition. What they need to reemphasize in the stores is why customers should pay them the premium price.”
Schultz, who was Starbucks’ CEO from 1987 to 2000, said the company’s heavy emphasis on growth in recent years has blurred its focus on ways to keep customers happy. He shouldered some of the blame for that.
“I haven’t been engaged in our stores with our customers for a very long time,” he told The Associated Press, promising to push for changes that differentiate Starbucks from its rivals.
“When you succeed at this level for so long ... you get a little soft,” Schultz said. “We have to get back to what made this company great, and that is to have the courage and curiosity and the commitment to do things that have not been done before.”
Asia, big market for bottled and canned coffee drinks
In addition to rolling out new drinks, Schultz said the company will work to get the growing number of people who buy bottled and canned coffee drinks hugely popular in Asia and packaged coffee to frequent stores.
In a regulatory filing Tuesday, Starbucks said Schultz will not receive additional compensation. He earned $1.19 million in base salary and a $2.38 million bonus in 2006, about $500,000 more than Donald, according to the most recent executive compensation figures available.