Wednesday, January 28, 2009

Time for Starbucks to reconsider its strategy

Today's disappointing earnings report from Starbucks Corp. must have company bigwigs trying to figure out what is happening to the world's largest premium coffee chain. True, Starbucks has revolutionized the coffee-retail business and now owns thousands of stores in premium locations in cities throughout the world, especially in the United States. But it looks like the company, in its quest for greater profit, has hit the proverbial wall. Of course, it doesn't take a genius to figure out what's wrong -- Starbucks charges too much for everything but its coffee, which is expensive but competitive. Analysts speculate that the weak economy is squeezing Starbucks, which reported profit and sales below first-quarter forecasts, according to Starbucks plans to cut nearly 300 stores and 6,700 jobs, in addition to previously announced cutbacks. "These are very difficult decisions but necessary to ensure that we have the appropriate infrastructure and cost structure to remain profitable going forward," said Troy Alstead, Starbucks chief financial officer, in a conference call with financial analysts, the Web site reported. "We are moving swiftly to adapt our business to the realities of the current environment," said Howard Schultz, Starbucks' president and chief executive. That, hopefully for the company, means lower prices. Starbucks did say it plans to offer "real value" with new offerings in March, but what boardroom bigwigs and coffee drinkers on the street think is "real value" could be very different.

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