Starbucks Boss Sacked After Sales Take Whipping

The troubled coffee chain Starbucks tonight dumped its chief executive and promised a radical overhaul of its business to tackle flagging sales at its 10,500 American stores.

The Seattle-based firm's board announced that Jim Donald, who has led the company for three years, was leaving with immediate effect. His role will be filled by chairman Howard Schultz, who was the architect of the chain's expansion during the 1980s and 1990s.

Starbucks' action was triggered by mounting unease on Wall Street about a fall in patronage at the company's outlets and about a renewed threat from fast food stores such as McDonald's, which today revealed details of an onslaught into premium coffee.

On a hastily arranged conference call, Mr Schultz promised a slowdown in store openings, closures of poorly performing branches, changes to products and store interiors and a reignition of the brand's "emotional attachment" with customers.

"We've become, in some ways, victims of our own tremendous success," said Mr Schultz.

He said that a slowing economy and rising dairy prices had contributed to Starbucks' problems - but that management was partly to blame.

"The most serious challenges we face are of our own doing," he said. "We invested in infrastructure ahead of the growth curve and although necessary, it led to bureaucracy."

Starbucks' shares, which have plunged by 45% over the last year, perked up by $1.37 to $19.75 in unofficial after-hours trading. But Mr Schultz warned: "There are no silver bullets or overnight fixes. It will take time."

But he said: "Just as we created this problem, we will fix it."
Credited with turning drinks such as "frappucinos" into household names, Starbucks has expanded aggressively, opening 2,600 new stores last year alone. Although it is faring well in Britain and elsewhere in the world, the company alarmed investors in November by revealing that the average number of customers at its US branches had dropped by 1%.

Mr Schultz recently warned in a leaked internal memo that the brand's charm was in danger of diminishing, as it became a mainstream "commodity". He said the sense of theatre had evaporated thanks to automatic espresso machines and he complained that some stores no longer even have an aroma of freshly ground coffee due to vacuum-sealed packaging.

Starbucks' increasingly broad customer base includes blue-collar shoppers who are viewed as more vulnerable to a possible US recession. Meanwhile, chains such as Dunkin' Donuts and McDonald's are moving into Starbucks territory with cut-price rival products.

An internal McDonald's memo leaked over the weekend to the Wall Street Journal revealed that the Illinois-based restaurant chain was introducing in-store baristas and adding cappuccinos, mochas and lattes to menus at its American sites.

McDonald's is also developing smoothies, iced teas and a ice-blended frappes with a view to adding $1bn annually to its global sales of $21.6bn.

Starbucks had its nose put out of joint last year when Consumer Reports, a US magazine, gave McDonald's coffee a higher taste rating.

A spokesman at McDonald's headquarters in Illinois said the company was not specifically targeting Starbucks: "We're competing for customers wherever they may be - not from any one brand. If customers are looking for coffee, we want ours to be the best value and the most convenient."