Starbucks Reports Same-Store Sales Down 8%

Decrease Is Improvement Over Previous Quarter; Touts Strong Sales of Via Instant-Coffee Product

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CHICAGO ( -- Starbucks promised new marketing, expanded value offerings and more cost savings to dig itself out of a financial morass. The company reported second-quarter earnings down 77%, primarily due to restructuring charges, and same-store sales down 8%. While the year-over-year decline in traffic is significant, it's a slight improvement from last quarter's 9% same-store sales decrease, which was a 10% decrease in the U.S.

CEO Howard Schultz cautioned that it's too early to call the slight improvement a trend. "The global economy continues to be weak," he said, "and we're conservative in our view of any significant recovery in '09, particularly in light of rising unemployment, foreclosures and other key economic indicators."

The call wasn't entirely devoid of good news, however. Via, Starbucks' "superpremium" entry into the instant-coffee market, is ahead of expectations in all channels. Starbucks, as first reported by Ad Age, began testing the product in company stores in Seattle, Chicago and London last month. The test expanded to include Target, Costco and some Barnes & Noble stores in U.S. markets earlier this month and, later, Britain's EasyJet airline. Not only are the products selling, but repeat customers are trading up from packs of three to packs of 12.

"Via is, from everything that we can see in the visibility we have, which is only about eight weeks old, we have tapped into something that is very, very large, with a very big prize," Mr. Schultz said. Starbucks estimates that the global instant-coffee business is already worth $17 billion.

Mr. Schultz said Starbucks will be adding new Via flavors, or blends, in the next few months. He declined to disclose whether the Chicago market, which has benefited from a full marketing effort, including TV, outdoor and extensive sampling, has performed better than Seattle, which did not have ads. Via will launch nationally this fall.

More than coffee
Analysts peppered executives with questions about marketing and the company's value proposition. Mr. Schultz expounded on an upcoming campaign, first described during the company's annual investor conference, designed to remind consumers Starbucks is about more than coffee.

"We know that customers are looking for meaningful value, not just a lower price but quality and the values that come with it," Mr. Schultz said. "We have a great story to tell on this front, and in the coming days we're going to arm consumers and our partners with the facts about Starbucks coffee and our company." Mr. Schultz said the "long-term, multimillion-dollar campaign" will focus on Starbucks' quality, value and values, building over time.

"I want to stress the investment we're making is long-term," Mr. Schultz said. "And we're confident our voice and our message will break through with our current and future customers."

Starbucks will also add to its value offerings. The chain will launch an iced-coffee drink for less than $2 on May 8. This will be part of the chain's assault on the perception that its drinks cost $4. Starbucks recently introduced a number of "breakfast value pairings," meaning a sandwich, oatmeal or pastry with a drink, for $3.95. Following an extensive study, the company will also be readjusting its pricing, which will vary by product and by geographic location. As a result, prices on some items will go down, and prices on the chain's larger and "more complex" drinks are likely to go up.

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