Savings hotter at Starbucks

7 April 2009

08 April 2009 | Jake Kanter

Starbucks buyers have a "free mandate" to cut costs and increase efficiency as part of the company's drive to boost savings by $26 million (£17.5 million).

The global coffee chain has raised its purchasing savings target from $127 million (£85.5 million) to $153 million (£103 million) for this year after introducing tougher supplier negotiations. The company has also been approached by vendors offering to reduce costs.

It has a total savings goal of $500 million (£337 million) for 2009, which will come in part from the closure of 300 stores worldwide potentially leading to up to 6,000 redundancies.

With procurement reform accounting for almost a third of its total goal, the Nasdaq-listed giant is the latest high-profile business to turn to buyers to make big changes in the economic downturn.

Speaking exclusively to SM, John Fogerty, director of purchasing for stores and IT, said the business was relying "fairly heavily" on procurement to reduce costs.

The buying team has been given the licence to overhaul major contracts, he said.

The company has cut back on large expansion projects, opening fewer stores during the economic downturn, and plans to rein in spend.

"In the past the emphasis has been, 'we need to build 1,000 stores a year, give suppliers what they want, ship it in overnight,'" Fogerty said. "Now we're building fewer stores, we need to be below a cost figure per store."

His team went through the savings plan "line by line" and broke down the cost of each product, such as dairy and bakery goods, by commodity.

Once the raw materials were compared with market rates and the cost of transporting them was factored in, the company had a better understanding of prices, Fogerty explained.

He said the company renewed several deals with suppliers after sending letters to prompt negotiation.

"Many long-standing vendors are now offering price reductions off-the-cuff, which is easy, but if they offer 5 per cent, you can always get 10 per cent."

Last month Fogerty was in Switzerland to restructure a contract, originally put in place by Starbucks' CEO Howard Schultz, for the company's Mastrena coffee machines.

Although he would not disclose the deal's value, he said the latest agreement should secure savings of more than $13 million (£8.7 million) in the next two years.

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