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Starbucks to cut more costs in tough economy

NEW YORK - Starbucks Corp said on Thursday it would take new steps to save on costs and keep its fundamental strategy unchanged despite a U.S. recession, sending the coffee shop operator’s shares up 8 percent.

Starbucks Chief Financial Officer Troy Alstead said at an investor meeting in New York on Thursday that he had found a way to save another $200 million by making in-store labor more efficient, managing waste and streamlining its supply chain.

Analysts gathered at the meeting had said they were looking for more clarity from Starbucks on plans to lower fixed costs and preserve profits as sales fall amid the biggest U.S. financial crisis since the Great Depression.

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

The savings, which will be realized over a few years, are in addition to a previously announced $205 million in fiscal 2009 cost cuts to come from closing stores and cutting jobs.

Now that Starbucks is operating fewer stores, it is also looking to improve efficiency in each store, said Cliff Burrows, president of its U.S business.

Developments include a 20 percent discount on 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,” said Starbucks CEO Howard Schultz. “We need to find a balance.”

A tough holiday

Looking ahead Schultz also called the holiday season “a very tough environment” and forecast that 2009 will 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.

Company executives said that while Starbucks was not losing customers to the recession, some were visiting less often.

Meanwhile fast-food chain McDonald’s Corp is pushing its own espresso drinks, which cost less than those at Starbucks.

Starbucks said last month it expected sales at established restaurants to decline in the fiscal year ending in September 2009. In fiscal 2008, the company shut 205 out of 600 stores slated to be closed by the end of fiscal 2009. It closed 61 Australia restaurants in August.

At the end of the fourth quarter, there were more than 11,500 Starbucks stores in the United States and more than 5,000 abroad.

Starbucks shares were up 10 cents at $8.74 on the Nasdaq just before noon.