A caffeine fix

James Dunn on how the US coffee giant, Starbucks, got its buzz back

The announcement by the coffee shop chain, Starbucks, that fourth quarter profits had more than trebled caps a remarkable turnaround in the fortunes of the US company. In the three months ending in December it recorded a net profit of $241.5 million (£148 million) compared to $64.3 million (£40 million) in the same period last year. In the last two years Starbucks has been ruthless in its attempts to protect dwindling profits. It cut thousands of jobs and closed over 900 outlets worldwide as consumers, hit by the recession, cut out their regular caffeine fix. The triumphant turnaround has been led by founder of Starbucks, Howard Schultz, who returned as chief executive in January 2008 to endeavour to save his company with heavy-handed but highly successful methods. At the time, he confessed Starbucks had expanded too quickly: "The big issue I think was that growth is not a strategy, it is a tactic, and if growth becomes a strategy I don't think it is an enduring one. I think growth covers up mistakes."

As well as closing shops and cutting staff, Starbucks employed many other ambitious strategies to try to beat the recession. In July 2009, the first unbranded Starbucks was opened in Seattle, the home of Starbucks. The shop, called 15th Avenue Coffee and Tea, was completely absent of Starbucks logos. Customers had to search hard to discover its true identity, with "inspired by Starbucks" in small print on the menus. After almost 40 years since it began plastering their logo all over its stores (all 16,000 of them), Starbucks was attempting to escape its own brand name. The "Stealth Starbucks" had one-of-a-kind furnishings and customers were invited to play their own music on the stereo system and to promote their own pet social causes. Senior vice-president, Tim Pfeiffer, claimed that: "This one is definitely a little neighbourhood coffee shop". The change in strategy has also started this side of the pond; a Starbucks recently opened in London's Conduit Street was furnished with second hand modern furniture. Schultz stated in his recent visit to England that the new store "is a reflection of realising that the relationship we want to have with our customers should harken back to this sense of community, this unique store environment". His plan is to refit 100 outlets in a similar vain by the end of the year.

Although the average spending per customer reduced as a result of the recession, Starbucks saw that people still wanted coffee but at a cheaper price. They introduced a so-called credit-crunch coffee, Via. This instant coffee, which comes in thin orange and brown sachets, has proved a hit. Via was rolled out in September to Starbucks stores across the US and Canada. "We expected a contribution from Via, but it was even more than we expected", said Chief financial Officer Troy Alstead, adding: " We knew it fit perfectly for people on the go, but there was much bigger single serve, at-home usage than we anticipated or hoped we could get." Sales rose 4 per cent rise in the US and 3.9 per cent in the UK, which the company has attributed mostly to Via. However, Via has not been a controversy-free product. During a press conference, at which Howard Schultz, was present, Starbucks openly claimed that it had been expressly told by the Food Standards Agency not to describe Via as "instant coffee" because the quality of the coffee was better than other products, including brands such as Kenco and Nescafé. It later issued a statement admitting that the claim was false and the Food Standards Agency had not said anything about the product.

Now that they have come back from the brink, Starbucks has ambitious plans for 2010. They recently announced a partnership with the fast food sandwich chain, Subway, which would see Starbucks coffee products sold in 9,000 Subway stores throughout the US by the end of the year. The company also aims to break into the Chinese market. If these expansions are successful, Howard Schultz may end up looking the cat that got the cream - and then made a Frappuccino out of it.

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