Starbucks Bracing For Tough Consumer Recovery
Starbucks Corp. (SBUX) is planning for a drawn-out recovery in consumer spending, but believes it has right-sized its once high- growth business model with more than half a billion dollars of cost cuts.
“We have shaped our plans assuming there’s a long recovery here and takes a while for the consumer to come around,” Starbucks Chief Financial Officer Troy Alstead said Wednesday at a Goldman Sachs retail conference. The consumer health outlook is still hazy as unemployment approaches 10% and consumers build up their savings, leaving Starbucks preparing for more uncertainty before prosperity. Alstead also said Starbucks would continue to use traditional marketing and social media like Facebook to fight against attacks from competitors that have chided the worldwide coffee shop for being too pricey. “Starbucks will not allow others to continue to define us in the customer’s eyes,” Alstead said.
Starbucks has faced new competition in the premium coffee market from McDonald’s Corp. (MCD). Earlier this year, a McDonald’s billboards in Seattle, Starbucks’ home turf, proclaimed: “Four bucks is dumb.” McDonald’s Corp.’s (MCD) premium coffee launch, McCafe, may not be giving the chain the boost it wanted. Earlier Wednesday, McDonald’s posted disappointing August same-store sales results, including a 1.7% increase in the U.S., a figure Research Edge LLC analyst Howard Penney says reflects consumers not taking to McCafe as much as thought.
Starbucks shares got a lift in recent trading, rising 79 cents, or 4.1%, to $ 19.99. Shares have more than doubled this year, and have bounced from a low of $ 7.06 last November.
McDonald’s shares, meanwhile, slumped on their results, falling 89 cents, or 1.6%, to $55.33 in recent trading.
Starbucks has identified about a thousand stores it has closed or plans to close and expects to cut about $550 million of costs this year as it responds to a global economic slowdown. It is also making its supply chain more efficient and reducing waste in stores.
As it has improved store profitability, Starbucks is taking about 30 U.S. stores off the list slated for closure, Alstead said.
