Starbucks Seeks Right Brew For Success In Recovery

The Australian:

quotation.jpgSTARBUCKS is planning for a drawn-out recovery in consumer spending, but believes it has trimmed its high-growth business model with more than $US500 million ($581.4m) 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 at a recent Goldman Sachs retail conference.

The consumer health outlook in the US is still hazy as unemployment approaches 10 per cent 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 such as 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, which closed most of its Australian stores last year after failing to penetrate the local market, has elsewhere faced new competition in the premium coffee market from McDonald’s.

Earlier this year, McDonald’s billboards in Seattle, Starbucks’ home turf, proclaimed: “Four bucks is dumb.”

But McDonald’s premium coffee launch, McCafe, may not be giving the chain the boost it wanted. McDonald’s has posted disappointing August same-store sales results, including a 1.7 per cent increase in the US, a figure Research Edge analyst Howard Penney says reflects consumers not taking to McCafe with the gusto predicted.

Starbucks shares have more than doubled this year and have bounced from a low of $US7.06 last November. McDonald’s shares, meanwhile, slumped on their results.

Starbucks has identified about 1000 stores it has closed or plans to close and expects to cut about $US550m 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 had improved store profitability, Starbucks was taking about 30 US stores off the list slated for closure, Alstead said.

The company would eventually resume opening new stores in the US, though saw more potential for growth overseas, he said.

Leave a Reply