Starbucks - Clover

Saving Starbucks, One Cup at a Time
By Alyce Lomax
August 28, 2008
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At long last, Starbucks (Nasdaq: SBUX) is rolling out single-cup brews using the Clover, the highly talked-about brewing system it acquired when it bought The Coffee Equipment Company earlier this year. Oh, and the top execs aren't getting raises next year. Maybe things are finally looking up.
Starbucks is putting the Clover in 10 Seattle stores, and it plans to roll out the high-end brewer in Boston and in more Seattle shops in the coming months. Bring it on, Starbucks. Being able to offer brewed coffee that customers can choose cup by cup -- and utilize variable pricing -- definitely differentiates the company from quick-serve coffee slingers such as McDonald's (NYSE: MCD) and Dunkin' Donuts.
Although my recent test-drive of the Clover didn't leave me convinced that all of the fuss is warranted, I agree that Starbucks will be able to bolster margins by serving higher-end coffee at different price points quickly and easily with this state-of-the-art machine, which has many fans.
In other big headline news today, word has leaked out that Starbucks' top brass, from the vice president level all the way up to CEO Howard Schultz, won't get pay increases next year. Any proponent of the pay-for-performance concept will find this a logical move -- and a cost-saving one, too.
Schultz is a hero to many shareholders, and I'm glad he's back, but his pay package last year -- $10.6 million, including $1.2 million in base salary -- clashed with Starbucks' good-guy image. (So did a recent lucrative separation agreement with a former executive.) That's especially true when business for Starbucks was, and continues to be, disappointing.
I'm not shedding a tear over thinner pay for Starbucks' executives. In June, I complained about how CEOs at some media companies, such as News Corp. (NYSE: NWS) and Lee Enterprises (NYSE: LEE), were getting lucrative pay despite crumbling stock prices. It's only fair to apply the same logic to the stocks I own and admire.
I wish the Clover had rolled out sooner, but I'm glad to see it's starting to hit the stores. Meanwhile, the tough stance on executive pay sounds reasonable, too. Meanwhile, Schultz and Co. are clearly actively working on turning around this business. I still believe that in several years, people will recall Starbucks' shares at current levels with longing.