Competitive Watch: Starbucks Still in a Slump

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Competitive Watch: Starbucks Still in a Slump

NEW YORK -- Starbucks Corp., whose sales are slowing as consumers buy fewer premium coffee drinks, does not expect to meet Wall Street estimates for the current quarter and would double its cost cuts for the full year, Reuters reported.

Company executives, speaking last week at an analyst day in New York, also warned Starbucks' results had not hit a bottom in the prior quarter, as previously suggested.

Starbucks chief executive Howard Schultz noted consumer spending patterns were erratic in a U.S. recession and said the holiday selling environment was tough.

"We do not expect to meet current consensus estimates for this quarter," said Chief Financial Officer Troy Alstead, noting in the first nine weeks of the fiscal first quarter, which began in late September, sales at U.S. stores opened at least a year fell 9 percent.

Starbucks also said it would save another $200 million from cost cuts this year by making in-store labor more efficient, streamlining its supply chain and managing waste such as excess steamed milk or brewed coffee that is not sold after 30 minutes. The savings are in addition to a previously announced $205 million in fiscal 2009 cost cuts from closing stores and cutting jobs, according to the Reuters report.

Starbucks is more focused than ever on cutting costs "out of necessity," Alstead said.

Now that Starbucks is opening fewer stores, the chain is also looking to improve efficiency in each store, said Cliff Burrows, president of its U.S. business. One plan includes reconfiguring store space so fewer workers are needed to serve customers.

Other developments include 20 percent off Starbucks gift cards sold at Costco Wholesale Corp. and a loyalty program offering discounts to paying participants. But the company is not discounting the drinks on its menu or changing its fundamental strategy.

"This is not the time to throw the baby out with the bathwater and say we need to shift our strategy. We need to find a balance," said Schultz. Looking ahead, he forecasted 2009 would be more difficult than the second half of 2008.

"Keeping our core customers during these hard times has to be job No. 1," said Terry Davenport, Starbucks' senior vice president of marketing, since it would be more expensive to get them back. Executives said that while Starbucks was not losing customers to the recession, some were visiting less often.

In other coffee news, Tim Hortons announced the Dec. 15th opening of its 500th U.S. store, which will be located at the Millender Center in downtown Detroit. The franchisees are former NBA star Derrick Coleman and his business partner, Walter Bender.

"We are proud to reach this landmark for Tim Hortons and the city of Detroit," David Clanachan, chief operations officer of U.S. and International for Tim Hortons, said in a statement. "The opening of our 500th store marks an important stage in our growth as we continue to develop our brand presence in the United States."

The Millender Center location will feature the full Tim Hortons menu, including premium blend coffee, the full hot and cold beverage lineup, always fresh baked goods, home-style lunches and the chain’s popular breakfast sandwich.