Can Starbucks' Schultz Work His Magic in Europe?

Coffee giant Starbucks (Nasdaq: SBUX  ) reported a 7% rise in global same-store sales as part of its second-quarter results declared last month. This was mainly fueled by a staggering 18% growth in same-store sales in China and the Asia-Pacific region. But Starbucks' European operations proved to be a major letdown, as same-store sales from Europe, the Middle East, and Africa -- the EMEA region -- fell 1%, due largely to lower consumer spending as it continued to be affected by adverse economic conditions. So, what is Starbucks planning to do about it?

A global push
I had previously spoken about how CEO Howard Schultz was planning to overhaul the coffee purveyor's European operations. Last week, the company announced a series of management-level changes to its global leadership structure designed to help "accelerate its innovation and growth." The move comes as Starbucks looks to further bolster its three-region operating model to cater to the following markets:

  • The Asia-Pacific and China region
  • The Americas, including the U.S., Canada, Mexico, and the Latin American countries
  • The EMEA region -- where operations have remained sluggish

The strategy should help the company focus on each region more closely, as Starbucks looks toward greater innovation and increased profitability in each of them. Coming back to the management reshuffle, Arthur Rubinfeld was appointed the chief creative officer and president, Global Development and Evolution (Fresh Retail), and Craig Russell took over from Dub Hay as the senior vice-president of Global Coffee.

The problem at hand
The management changes are one thing, but how can Starbucks tackle the problem it faces in Europe? It's not as if competition is eating away at Starbucks' market share. Dunkin' Brands (Nasdaq: DNKN  ) is present in Germany and Spain as well as in Russia, but the doughnut maker lacks the same penetration that Starbucks enjoys. However, McDonald's (NYSE: MCD  ) has an enormous presence in Europe and has actually increased its coffee-based offerings over the last two years. But for me, as far as the coffee game goes, it simply doesn't match up to the level of Starbucks.

The main problem is that Europe, by itself, is in the midst of turmoil, which is why consumer spending has taken a hit -- leading to faltering operations at the coffee major. Having said that, I still have faith in Howard Schultz's ability to revive Starbucks' operations. Schultz did admit that the company ignored Europe while it was trying to revive its U.S. operations. Now, apparently, the company is trying to cater to specific tastes prevalent in different European countries to help drive sales.

Starbucks, I feel, will be able to fix the European problem. As I mentioned earlier, Schultz had, in fact, said, "We've seen this movie before, and I'm proud to say it had a very good and positive ending." Cheers to that!

Don't expect a quick turnaround for Starbucks, though. It took a while to get things back on track in the U.S. and the same will apply to Europe as well. In the meantime, you can also take a look at a stock we at the Motley Fool are simply in love with. So much so, that we've called it "The Motley Fool's Top Stock for 2012." This emerging-market retailer has the most upside potential we've seen in a while. Learn more for free.

Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks and McDonald's. Motley Fool newsletter services have recommended writing covered calls on Starbucks. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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