Schultz back at helm of Starbucks to take on McDonald's

Starbucks last night dramatically turned to the entrepreneur who inspired its sensational international expansion in an attempt to revitalise a business that has lost its way and faces tough new competition.

In a move that surprised Wall Street, the coffee chain ousted its chief executive, Jim Donald, and reinstalled as the day-to-day head of the company Howard Schultz, who stepped up to become chairman seven years ago.

It was Mr Schultz, who joined Starbucks in 1982 when it had just four outlets in Seattle, who turned the company into one of the most recognisable brands in the world, reviled in some quarters as an exponent of American corporate imperialism but undeniably shaping the way consumers see their morning coffee.

But in recent years the company's results have been disappointing and Wall Street has increasingly been asking if, with new outlets opening sometimes just a few city blocks from each other, Starbucks has saturated the market.

The question is even more acute at the start of this year because Starbucks is about to face its most serious challenge to date for the hearts and minds of American coffee drinkers a plan by McDonald's to install upmarket coffee machines in all of its 14,000 US restaurants.

Mr Schultz last night signalled that he would begin to close underperforming US stores and significantly slow the pace of further expansion in the US. Just how many of the chain's 10,000 US stores might close would be discussed at the next financial results presentation at the end of this month, he said.

"We know we can improve our performance by getting back to the essence of what drove Starbucks' past success," he said. "That is, our passion for the business and a complete focus on the customer."

Money saved by scrapping US expansion plans would eventually be spent on extra international expansion, Mr Schultz added.

For now, though, the focus is on attracting back customers in its home market, which have been falling for the first time since Mr Schultz took the company public in 1992. And in particular that means preparing against a resurgent McDonald's. Following successful trials in Kansas City stores, the fast-food chain plans to install upmarket coffee machines capable of producing Starbucks-style espressos, lattes and cappuccinos in all of its US restaurants something the group describes as its largest undertaking since it introduced breakfasts 35 years ago. Customers will even be able to buy frappes, the iced coffee that Starbucks sells gallons of during hot weather.

It's a straightforward land-grab. McDonald's customers will be served their coffee by staff known as "baristas" from filter machines that grind beans in front of them just like in Starbucks. In Kansas, McDonald's' advertising has made it very clear whose market is being targeted television spots poke fun at Starbucks' tall, grande and venti cup sizes (McDonald's prefers small, medium and large).

And there is a worrying precedent for the impending scrap. Dunkin' Donuts hardly renowned for its high-brow produce launched aggressively into the coffee market in 2005, with huge success. "Dunkin' Donuts is now the biggest single coffee retailer in areas of the east coast of the US, which proves this can be done," one analyst said. "Americans are not snobbish about where they buy their coffee."

McDonald's has one particularly significant card to play. It plans to undercut Starbucks by some margin prices in the Kansas City test run were between 60 and 80 cents cheaper than at rivals.

Could McDonald's one day import its new business model to the UK? If it proves successful in the company's home market, there is every chance it will do so. UK customers are much less sniffy about where they buy their coffee than continental European ones. McDonald's already has "McCafes" in Ireland and Starbucks would again be the likely target.

And just as Dunkin' Donuts has moved in on the US coffee market, unlikely competitors have prospered here. David Pope, a drinks analyst at Brewin Dolphin, said: "When JD Wetherspoon put coffee machines into its pubs and began opening at 9am, it rapidly started outselling Costa and Nero and that was from a standing start."

How the giants match up


* First restaurant opened in Des Plaines, Illinois, in 1955 by Ray Kroc, and named after the McDonald brothers. The pair ran a hamburger stand with a milkshake mixing machine that Mr Kroc believed could be sold to a chain of restaraunts. The company went public in 1965.

* McDonald's has nearly 14,000 restaurants in its home market, and 17,000 more around the world, including 6,400 in Europe. Its rapid expansion has partly been due to its franchising model.

* Global sales for 2006, the last year for which figures are available, totalled $21.6bn (11bn), producing profits of $4.4bn. The company believes its plans for an expansion into the coffee market could add $1bn to sales.


* First store opened in Seattle in 1971 by three partners who wanted to sell high-quality beans and coffee-making equipment. Howard Schultz joined the company in 1982 and pushed for Starbucks to begin selling drinks, eventually taking it over and implementing the idea in 1987. The company floated in 1992.

* Starbucks operates in 50 US states with 6,700 stores run by the company itself and a further 3,900 outlets. It has expanded into 42 other countries where it now has 4,300 stores. Unlike McDonald's, Starbucks does not offer franchises to individuals, although it does license operators in locations such as airports.

* Starbucks made total sales of $9.4bn in 2007, a 21 per cent increase on 2006. Profits were $673m.

Arts and Entertainment
Rita Ora will replace Kylie Minogue as a judge on The Voice 2015
Life and Style
Life and Style
Alan Turing, who was convicted of gross indecency in 1952, was granted a royal pardon last year
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Life and Style
Arts and Entertainment
Tennis player Andy Murray's mum Judy has been paired with Anton du Beke for Strictly Come Dancing. 'I'm absolutely delighted,' she said.
tvJudy Murray 'struggling' to let Anton Du Beke take control on Strictly
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Project manager - Web E-commerce

£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits