Starbucks Corp Chief Executive Officer Howard Schultz is shifting the coffee seller’s focus from cost cutting to growth by promoting new products, including Via instant coffee and its Seattle’s Best Coffee brand.
“The future of the company is not based on cost takeouts,” Schultz said. “It’s based on innovation and the emotional connection and trust we have with our customers.”
Schultz, 56, plans to expand distribution of its instant coffee into grocery and drug stores and has signed an agreement to bring the Seattle’s Best brand to 9,000 Subway restaurants by the end of the year. Starbucks is looking to return to sales growth at established stores after four straight quarters of declines. The Seattle-based company closed more than 900 stores to help trim $580 million in costs in the year ended on September 27.
The drop in fourth-quarter comparable-store sales in the US narrowed to 1 per cent. Sales at domestic stores open at least a year fell 6 per cent in the third quarter and 8 per cent in the second, after tumbling 10 per cent in the first.
Earnings per share excluding some items rose in the past three quarters after four straight declines. Net income rose to $150 million, or 20 cents a share, last quarter, from $5.4 million, or 1 cent, a year earlier. Sales fell to $2.42 billion. Starbucks rose $1.42, or 7.2 per cent, to $21.12 at 4 pm New York time in Nasdaq Stock Market trading in the biggest gain since July 22. The shares have more than doubled this year.
“They’ve held on through the worst of it,” said Jeff Farmer, a restaurant analyst at Jefferies & Co in Boston, referring to the economic crisis. “I’ve had a hold on the stock forever and even I can’t deny that what they’re doing is working.”
Farmer, who doesn’t own the shares himself, is among 12 analysts with a hold rating on the shares, while nine say buy and none advise selling.
Schultz announced an agreement with Acosta Sales and Marketing Co to bring Via Ready Brew to convenience, grocery and drug stores next year as it seeks a portion of the $21 billion soluble coffee market. Jacksonville, Florida-based Acosta distributes goods from more than 1,000 consumer products companies in North America.
The agreement represents a move away from Starbucks’ usual distribution partnerships with PepsiCo Inc and Kraft Foods Inc.
Schultz is also bringing Seattle’s Best out from “under the shadow of Starbucks”, adding restaurant accounts, such as Milford, Connecticut-based Subway, and adding licensed stores. He split the brand away from Starbucks’s whole-bean and bottled- beverage products in September and named Michelle Gass president of the unit.
“Seattle’s Best has a very bright future and it can do things that Starbucks cannot,” Schultz said, citing sales through vending machines, gas stations and fast-food outlets. “We want to unleash Seattle’s Best to do that.”
From 2005 through 2007, Starbucks added locations at an annual pace of 20 per cent, a rate it couldn’t sustain during the global recession. In 2008, when Schultz returned to the CEO job after a hiatus of almost eight years, he cut that growth rate in half.
As of September, the company had 16,635 coffee shops worldwide, about two-thirds of them in the US It plans to add a net 300 stores in fiscal 2010.
