Shakeup at Starbucks

New York City Starbucks Coffee Co. has ousted CEO Jim Donald and replaced him with former CEO and chairman Howard Schultz after posting its worst annual performance in U.S. trading. Donald, 53, is leaving Starbucks less than three years after becoming chief executive.

Schultz told executives in a February memo that the company's expansion was “watering down' its brand. Starbucks, which faces competition from McDonald's Corp.'s new specialty coffee counters, now plans to shift money that was earmarked for U.S. growth toward international expansion. It also plans to shutter some U.S. stores.

"Howard is the architect of the Starbucks brand and the visionary behind the unique customer experience that is at the heart of this remarkable company's success," said Craig Weatherup, chairman of the Starbucks board of directors' nominating and corporate governance committee.

"Given what the board believes needs to be done, there is no better person to drive change and ensure that Starbucks is positioned to innovate, execute and relentlessly focus the entire organization on the customer."

Starbucks said Schultz intends to speed Starbucks' expansion overseas while streamlining the company's management ranks. The company wouldn't say how many stores it would close and declined to detail its revised growth plans until it reports fiscal first-quarter earnings on Jan. 30.

The chain has lost 29% of its stock price since Donald took over in April 2005. The shares fell 42% last year amid investor concern that the company was adding new stores too quickly.

The chain also faces increased competition from McDonald’s, which recently announced it plans to add counters to serve lattes and cappuccinos in almost 14,000 U.S. stores. The chain made the announcement after U.S. coffee sales increased 39% during the first nine months of 2007.