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Starbucks' Schultz finally shaking things up


“Well, we have read that McDonald’s is going into a premium cup of coffee, to serve a premium cup of coffee, and we are in that business. We are in the premium bean segment, and we think that the more the consumer gets educated on premium coffee, the more (that) bodes well for all of us that are serving that type of coffee. We watch it closely, but at the end of the day, we think that it helps educate the customer on what really a great cup of coffee is all about.”

—Former Starbucks CEO Jim Donald, February 8, 2005.

When a stock drops 50% in a year, it’s tough for the CEO to hang on. When that CEO appeared to be, time after time, oblivious to the causes for that drop, well, see Exhibit A of 2008: Starbucks suddenly former CEO Jim Donald. It’s almost one year ago that Starbucks sort-of-founder, chairman and just now CEO again Howard Schultz issued a call to arms in a memo ackowledging that the coffee chain had opened the door to competitors. Anyone can sell coffee or lattes or even carmel macchiatos. What made Starbucks special was the atmosphere. Despite Schultz putting his finger on the right problem, Donald seemed slow to craft a solution or actually do much of anything. With Howard back in charge, shares of Starbucks (Symbol: SBUX) all the way down in the $18 range (about where they were four years ago adjusted for a stock split) and Wall Street’s most bullish analysts having thrown in the towel and yanked their “buy” ratings, now is the time for re-entry.

You’ll probably read a lot about founders coming back to save their foundering creations over the next 24 hours. Michael Dell, Steve Jobs, and on and on. Schultz return is definitely of the Jobs variety - not only does he have vision, it’s vision that his company is so clearly lacking. As Schultz says in a statement the company put out a little while ago: “We know what needs to be done.” And he’s got a multi-point program to get things in order, starting with enhancing the customer experience, slowing the pace of U.S. store openings and spending more capital to expand overseas where the opportunities are richer.

p.s. Blogger and investor Todd Sullivan was ahead of the curve on this move. Commenting on the Wall Street Journal story today on McDonald’s coffee forays, Sullivan posted some of Donald’s more clueless comments. Then he called for the CEO to be fired, a slowing of U.S. Starbucks openings and an overhaul of the customer experience. Looks like Sullivan was right on.


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