Starbucks to Close Stores and End Sandwich Sales
At the very least, Starbucks will smell like coffee again.
As part of a turnaround plan, the beleaguered coffee giant said Wednesday that it would discontinue warm breakfast sandwiches at its stores and focus instead on healthy breakfast options and high-quality baked goods.
“In short, the scent of the warm sandwiches interferes with the coffee aroma in our stores,” said Howard D. Schultz, the company’s chairman and chief executive.
Mr. Schultz also announced that his company would close 100 underperforming locations in the United States while scaling back the rate of store openings domestically. At the same time, Starbucks will move more aggressively to open stores overseas, where business remains robust. He did not identify the locations that will be closed.
In all, Starbucks will open 1,175 restaurants in the United States this budget year, down from its previous goal of 1,600. The company will open 75 more stores abroad than originally predicted, for a total of 975.
Mr. Schultz’s comments came as Starbucks reported anemic sales growth of 1 percent at stores open at least a year, the worst three-month performance in the company’s history. United States sales have been battered by a weak economy and increased competition from the likes of McDonald’s and Dunkin’ Donuts. Same-store sales for American stores declined 1 percent.
Adopting a risky tactic that may alienate Wall Street, Mr. Schultz said the company would no longer provide same-store sales numbers, at least temporarily, as he moves forward with his turnaround plan. He said the company’s decisions had been too driven by improving same-store sales rather than consumer needs and that same-store sales numbers would be “erratic” during the transformation.
A similar decision in 2006 by Robert L. Nardelli, chief executive of Home Depot, infuriated Wall Street analysts. The decision turned out to be the beginning of the end of Mr. Nardelli’s reign.
Starbucks reported earnings of $208 million in the first quarter of its budget year, which ended Dec. 30, a 2 percent gain over the same period a year ago. However, Mr. Schultz warned that the coming year would be difficult because of the reorganization and weakening economy.
“You would have to agree that the consumer is in a recession,” he said.
Mr. Schultz’s remarks came after the close of markets on Wednesday. Starbucks’ shares declined in after-hours trading by less than 2 percent, to $18.90. In 2007, Starbucks’ stock declined more than 40 percent.
What remains unclear is how Mr. Schultz will recapture the cachet that made Starbucks a customer favorite and Wall Street darling. On Wednesday, he said many details of his plan, “including bold innovations that will reassert our coffee leadership, redefine the in-store experience and introduce core brand-building initiatives,” will be announced at Starbucks’ annual meeting in March.
Mr. Schultz, who served as chief executive from 1987 to 2000 and is widely credited with Starbucks’ success, was brought back as chief executive this month to try to restore the company’s luster.
Harvey Hartman, founder and chief executive of the Hartman Group, a food consulting and market research firm, said it was smart to get rid of breakfast sandwiches and revive the smell of fresh coffee. He also applauded Mr. Schultz’s decision to focus on consumer needs rather than Wall Street demands.
“What we hear from consumers more than anything else is, ‘It’s not that I don’t like Starbucks,’ ” he said. “ ‘It’s that they are no longer as relevant to me as they used to be because I’ve changed, and they haven’t changed with me.’ ”
