SEATTLE -- Starbucks will say goodbye to its breakfast sandwiches, close about 100 underperforming U.S. locations and slow down the number of domestic openings as the coffee company retools itself amid a slowing economy, reported The Seattle Post-Intelligencer.
The changes, announced Wednesday along with modest first-quarter earnings, also include putting more emphasis on overseas expansion.
"It's important to understand a new day is here," chairperson Howard Schultz, who took over as CEO January 7, told the newspaper. "We want to put the customer at the forefront of every decision [image-nocss] we make, and we want to exceed their expectations at what we are doing."
Schultz, who replaced fired CEO Jim Donald, said a five-point plan on a "catalyst for change" would be revealed at the company's annual meeting March 19. While still growing the company, Schultz wants to return Starbucks to its roots of intimate coffee houses with unique drinks where baristas connect with customers.
Problems became public nearly one year ago, said the report, when Schultz sent out a Valentine's Day memo, called "The Commoditization of the Starbucks Experience," lamenting challenges within Starbucks and the "watering down" of the company.
One way to turn back the clock is getting rid of the breakfast sandwiches, even though they bring in significant revenue and were seen as a way to compete for morning sales with McDonald's Corp., which is going head-to-head with Starbucks on coffee sales. But Starbucks employees had long complained the smell of egg-and-cheese sandwiches overpowered the aroma of coffee and cheapened the store experience, and Schultz agreed. He said input from baristas during the past three weeks influenced his decision.
The move to eliminate the sandwiches, which bring in more than $100 million in annual revenue, was "a tough decision, but it's a very easy decision on what is at stake," Schultz said. "For 35 years, we have ethically sourced and roasted high-quality coffee by passionate people, and we should not do anything in the stores that is in conflict with that."
Schultz said stores would begin phasing out breakfast sandwiches through the current fiscal year, which ends September 28, and they would be replaced with a healthy alternative. "Customers have told us they want a healthy breakfast alternative, and no one has responded to that need," he said.
He did not say what the company would sell in place of the sandwiches, which bring in about $35,000 in annual sales per store. But he told the Post-Intelligencer that the company's food group would deliver a product that "wouldn't dilute the integrity or romance of coffee."
The company declined to disclose the precise number of stores selling the sandwiches, but it said the sandwiches were in 3,000 to 4,000 stores.Based on those figures, said the report, the company could lose $105 million to $140 million in annual revenue. Schultz said the sandwiches had a small profit margin compared with coffee, but he did not disclose figures.
The company, which during the last quarter opened about eight stores a day, said it would open about five stores a day for the rest of the fiscal year. Despite the slowdown, Starbucks still is the largest gourmet coffee chain in the world with 15,756 stores in 43 countries.
In November, the company started feeling a pinch from a slowing economy, and it lowered its estimated 2008 worldwide openings by 100 stores to 2,500 net new stores. That figure was lowered again Wednesday to 2,150 stores. The number of projected U.S. store openings will drop from 1,600 to 1,175, while the number of foreign stores will increase from 900 to 975. In 2009, the company for the first time is projecting to open more stores overseas than in the U.S., which will have fewer than 1,000 new stores.
In 2009, Starbucks for the first time is planning to open more international stores than U.S. outlets. "International will offset some of the weakness in the U.S. market," Schultz said.
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