Starbucks To Serve Up Recession Plan

Last year's annual shareholder meeting for Starbucks investors was a jumpin' affair. Singer k.d. lang performed. And founder Howard Schultz, who had recently taken back the job of CEO, was greeted with a standing ovation, despite the fact that Starbucks shares had been cut nearly in half over the previous year.

"This will not stand," Schultz promised shareholders, echoing George H.W. Bush's promise before Desert Storm. But while Bush was able to push Iraq out of Kuwait, Schultz has been unable to stop his company's stock from falling. One year ago, the battered shares were at $18.23. Now they were hovering around $11.

Schultz' honeymoon period is over. So this year's meeting, taking place Wednesday in Seattle, promises to be much more subdued. The Wall Street Journal reported on Monday that the company will set forth a "recession strategy" focused more on retaining existing customers than on attracting new ones. Starbucks will emphasize "value" and will continue to look for ways to cut costs.

Schultz told the Seattle Times' Melissa Allison recently that Starbucks won't be doing much in the way of innovating or introducing new products in the near future.

That's a far cry from his promise a year ago of "a relentless focus on innovation." He has made a lot of changes since then, but now the company is hunkering down to weather the recession.

But Schultz also said there wouldn't be any more layoffs. Already, he has cut about 18,000 jobs in the United States and has closed 975 stores.

That might not be enough. Starbucks' main problem, as Schultz himself said two years ago in an infamously leaked memo to then-CEO Jim Donald, is that it had expanded too much and had "commoditized" the Starbucks "experience" through sheer ubiquity. The emphasis on expansion had taken the focus off quality. Despite the store closures, Starbucks is still ubiquitous in the United States, and, as I will argue in an article later this week, should close many more stores in the United States even as it looks overseas for the growth needed to placate investors.

Meanwhile, Schultz will continue to struggle to figure out how much it can emphasize "value" without hurting its image. Some observers have complained that recent initiatives, such as sandwich-and-drink combination deals and the introduction of Via instant coffee, mean that Starbucks is taking the low road.

It's not, though. Under Donald, Starbucks introduced drive-through windows and Egg McMuffin-like breakfast sandwiches, as if the chain were in the same market as McDonald's—that was the low road. None of Schultz' initiatives have that fast-food feel (and he dropped the breakfast sandwiches as soon as he took over). In the case of value meals, the chain is simply selling the same stuff for a little less. In the case of Via, it's not a matter of Starbucks going downmarket but of taking instant coffee upmarket. It's also a matter of boosting sales overseas, where instant coffee isn't pooh-poohed as it is stateside.

And overseas is where Starbucks is pinning all its hopes for growth.