Starbucks shakes up U.S. business

Starbucks Corp. (NASDAQ: SBUX), the epitome of high-priced coffee and latte beverages, saw a drop-off in customer traffic in 2007. Founder Howard Schultz even returned to the CEO helm to try and figure out why customers stopped coming in its stores. He even announced some store closures and the banishing of breakfast sandwiches that were competing with its trademark coffee smell.

This year may see much of the same customer traffic patterns though it may be due to different reasons. With many people predicting gas prices of $3.75 to $4.00 per gallon by this summer, will customers simply stop buying $4 cups of macchiato? They already are in droves. Add that to the rising cost of coffee, and Starbucks may be in for a world of hurt in 2008.

In the meantime, Schultz is making changes at the top of the ranks, starting with the "retirement" of Launi Skinner as head of U.S. operations. Skinner's performance could be seen as semi-disastrous, so she'll be "spending more time with her family" while Cliff Burrows steps in to take over. Burrows formerly was president of Starbucks Europe, Middle East and Africa stores, but he'll have a much larger challenge in the U.S.

After Starbucks saw a share price decline of 43% last year in addition to a 13% drop this year, Shultz has to do something to stem the bleeding. Shoring up that trademark smell inside stores, limiting growth and decreasing store/brand dilution and stuffing in some new blood may do the trick, but 2008 won't be easy for the coffee retailer in way, shape or form.