Will Peltz Add to Starbucks' Pressures?

(MoneyWatch)  Just what Howard Schultz needed: Not even six months into his return as CEO of Starbucks with plans to revamp the struggling company's strategy, it looks like he might soon have Nelson Peltz, the activist investor, breathing down his neck.

Peltz, who has bought stakes in HJ Heinz, Wendy's International, and Kraft Foods, has taken a small stake in the coffee chain through his Trian Fund Management, amounting so far to less than one tenth of 1 percent. He tends to agitate for big changes in the companies he invests in. Generally, though, his target companies tend to be stuck with a stodgy management that resists change. Starbucks, by contrast, seems to be tackling its problems head-on, with an eye toward getting back to basics ?€" selling coffee.

Some of this is pure marketing, of course, as when Starbucks shut down all of its stores a few weeks ago for staff retraining. But Schultz has also made some big, substantive moves already.

Peltz often pushes companies to focus on their core competencies, and cast off superfluous businesses. And that's exactly what Schultz says he's trying to do. So far, he's stopped serving breakfast sandwiches, cut movie promotions in stores, and cut back the music division. He's commanded his staff to innovate and to concentrate on coffee drinks.

It's hard to know what else Peltz might want the company to do. So far, he hasn't asked for anything and neither he nor Schultz have commented on the investment.

Peltz also tends to pressure companies to cut costs. John Glass, a Morgan Stanley analyst, speculated to the Wall Street Journal that this might be what Peltz has in mind for Starbucks. He might demand spending cuts or an increase in the use of licensing and franchising for new Starbucks outlets, which would shift some costs onto franchisees.

The Journal noted that capital spending rose 68 percent from 2005 to 2007. But a lot of that went into building new stores ?€" something Schultz has already cut back on.

It will be interesting to see what Peltz has in mind. Who knows ?€" maybe he likes what Schultz is doing and took a stake as a pure investment.