Starbucks smells the milky coffee

Starbucks chairman Howard Schultz has decided that if he wants the job of chief executive done properly, he'll have to do it himself.

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Last Updated: 06 Nov 2012

The coffee shop chain said on Monday that Jim Donald, who has held the top job since 2005, would be leaving the company with immediate effect. His role will be taken by Schultz, the man responsible for turning a Seattle-based shop into a ubiquitous international chain of milky drink dispensers. With Starbucks in the doldrums, he’s clearly decided that he can’t trust anyone else to do the job properly.

It follows a year when Starbucks saw its share price slump by almost a half, as investors worried about its flagging sales, aggressive expansion and deserting customers – it said in November that the number of punters in its US stores fell by 1% for the first time in its history. The rising cost of key commodities like milk and coffee hasn’t helped, either.

Schultz admitted Starbucks had lost its way, suggesting that its huge number of US outlets (some 10,500 in total) had created too much bureaucracy and cannibalised its own sales. He also thinks that poor service and a lack of authenticity (i.e. freeze-packed coffee and automatic espresso machines) has diluted the customer experience (he didn’t mention that its coffee barely tastes of coffee, but we suspect that probably doesn’t help). And with a number of rivals targeting its market share – notably McDonald’s, as we reported yesterday – Starbucks needs to turn things around quickly. So Schultz is doing what a lot of successful entrepreneurs do after moving upstairs: taking his ball back.

Krispy Kreme, which is even worse shape - it's more hole than doughnut these days - has gone down a similar path. After seeing sales drop by a sixth last year, the doughnut chain has said that CEO Daryl Brewster will be leaving the company, to be replaced by chairman James Morgan. In a glowing endorsement of Brewster’s leadership skills, the share price immediately jumped 10%. But he’s got a tough job on his hands: Americans are eating more healthily (believe it or not), and Dunkin’ Donuts is currently munching its smaller rival for breakfast.

Today’s moves won’t please corporate governance sticklers, since both men will now act as chairman and CEO. But if anyone can revive Starbucks, it’s probably Schultz. And he’s got one big advantage over Morgan – we might cut down our doughnut consumption, but the working population just wouldn’t survive without coffee...

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