Starbucks to Fend Off 'Tailspin' With New Coffee, Grinding Beans in Stores

Starbucks, looking to fend off an economic "tailspin" is introducing a new automated espresso machine and getting back to grinding beans in its stores as the coffee retailer seeks to re-energize its slumping business.

The company also will soon introduce a new "everyday" drip coffee — a brew called Pike Place Roast to be served up daily in all its stores — rather than offering new blends from day to day.

And it will start rewarding people who use the company's purchase card with perks like free syrup in their flavored lattes and coffee refills.

Facing thousands of shareholders eager to hear the company's plans, Starbucks Corp. Chairman and Chief Executive Howard Schultz on Wednesday announced the arrival of the Mastrena, a new machine designed to leave a smaller margin for error in pulling shots and steaming milk.

While likely to disappoint some longing for the return of old-school manual machines, the Mastrena is about seven inches shorter than machines in stores now, making it easier for baristas to interact with customers.

"It's not just a piece of equipment," Schultz said of machine made by Thermoplan, the same Swiss company that makes Starbucks' current machines. "It's an unbelievable tool that will provide us with the highest-quality, consistent shot of espresso that will be second to none."

In an interview before the company's annual shareholders' meeting, executives said the company will also quit using flavor-locked bags of pre-ground coffee next month. Instead, it will grind beans in most of its U.S. stores to bring back the aroma that's been missing since it started using sealed grounds years ago.

Michelle Gass, Starbucks' senior vice president of global strategy, said she expects the change will improve sales, which have been slipping amid a softening economy and growing competition from cheaper rivals.

Starbucks' stock has been falling steadily for more than a year, losing more than half its value since late 2006, when it was trading at close to $40 a share. Its shares shed 74 cents, or 4 percent, to close at $17.50 Wednesday, then inched up 20 cents in after-hours trading.

Morningstar analyst John Owens surmised that Wall Street focused more on the gloomy outlook for the economy at large than Starbucks' prospects for turning itself around.

Most retailers have taken a serious hit amid a downturn in the housing market, rising gasoline and food prices, and a widening credit crunch.

But Schultz, who returned as CEO in January after Starbucks forced out his predecessor, Jim Donald, has argued that Starbucks' bigger problem was that it spent the last few years focusing too much on growth and not enough on coffee and customers.

Nevertheless, Schultz leveled with investors, saying he sees no signs of a near-term end to the economic downturn former Federal Reserve Chairman Alan Greenspan has called the worst since World War II.

Schultz said Starbucks is seeking to drive up sales by adding rewards to its loyalty card, including complimentary drinks of their choice if they buy a bag of coffee beans.

The company also launched its first-ever social networking site Wednesday. Chris Bruzzo, Starbucks' chief information officer, said will give customers a chance to share ideas, vote for pitches they like and see how the company responds.

Starbucks will start selling Pike Place Roast — named for the company's first store in Seattle's storied public market — in most of its U.S. stores next month.

"As we talked to customers over the last year, what we heard was that the morning occasion was very, very habitual and they want a taste they can count on," Gass said.

Customers will have two other choices for drip coffee: one other caffeinated variety and one decaf.

Pike Place Roast is the first coffee made entirely of beans purchased through the company's sustainable growing practices program — its version of fair trade, shade-grown and organic.

Starbucks announced a renewed five-year commitment with Conservation International to fight global warming by supporting farmers who preserve forests in coffee regions. The program will begin with two sites in Sumatra, Indonesia, and Chiapas, Mexico.

Also on Wednesday, Starbucks said agreed to buy a small Seattle company that makes a machine that brews coffee much like a French press. The Clover, made by The Coffee Equipment Company, is already in use in some Seattle and Boston stores and will appear in others soon, though the company did not disclose details on when and where.

Starbucks has made several other moves in recent months hoping to turn its business round, from scaling back growth in the U.S. and closing poorly performing stores to rolling out limited free wireless Internet access in most U.S. stores beginning this spring. It has also tested $1 "short" cups of drip with free refills in Seattle to see if a discount can lure in penny-pinching customers.

Schultz said more changes are in store, including an entry into the fast-growing energy-drink market later this year, though he said no details would be announced Wednesday.