Starbucks to close outlets as UK loses its taste for premium coffee
The move, which comes on the back of a 5% sales decline for the chain, is further evidence that the economic crisis is affecting businesses previously thought recession-proof.
It comes two years after Starbucks' share price reached a high of $30 and chief executive Howard Schultz announced it was aiming to open 40,000 outlets worldwide, half of them outside the US.
But since then the chain has suffered from increased competition as rivals such as McDonald's, Dunkin' Donuts, Costa Coffee, Caff Nero and Caff Ritazza have begun producing freshly ground coffee. Starbucks has already closed almost 700 outlets in the US and Australia as demand for the firm's premium-priced coffee falls. On Friday the share price was $9.36.
A spokesperson for the chain admitted it had been forced to close a number of outlets but said the business still saw the UK market as a long-term growth opportunity.
She said: "Starbucks continually reviews each part of its business to ensure it is contributing to a profitable, sustainable business model. As a matter of course we evaluate our store performance and on occasion it is necessary to close a store, and this can be for a number of reasons: the lease has expired, a new store location becomes available or store performance.
"In financial year 2008, Starbucks Coffee Company UK closed a small number of stores. However, Starbucks continues to plan new store openings internationally going forward. Starbucks believes our EMEA (Europe, Middle East and Africa] operations, including the UK, are a good growth engine for the company."
In the previous downturn after the bursting of the dotcom bubble in 2001, Starbucks managed to continue growing sales, leading some analysts to suggest that the business model was recession-proof. But a rise in cut-price competition has meant that consumers can now trade down when feeling financially squeezed.
Schultz, who returned to the helm of the company in January as chief executive, a role he had left in 2000, has said the company needs to curb its growth.
He said: "Over the last 10 years we have built the leading position in the coffee category and established our store as a trusted brand and place based on the experience we have created. We want to continue to build on that, but this is a moment in time the like of which we have never seen and, as a result, we want to be extremely careful in how we grow the company.
"The entire retail sector is operating in a very tough economic environment. While Starbucks has not been immune to the decline in consumer confidence, we are fortunate to have a world-class brand and a loyal customer base. In this environment it is critical to put our feet in the shoes of our customers."
Presently Starbucks is the leading pan-European coffee bar operator, having ramped up its opening programme with recent forays into Denmark and the Netherlands. Before the global downturn, the European branded market across the Continent was forecast to grow at nearly 9% a year, expanding from 7,000 outlets to more than 11,000 by 2012.