The chairman of Starbucks, the ubiquitous coffee chain, effectively sacked his chief executive yesterday and assumed the dual role in a bid to lead the group towards recovery.

Howard Schultz, the chairman credited with building the group into an international company over the past two decades, said that Jim Donald, his chief executive, would be leaving the company.

Mr Schultz told Wall Street, staff and customers in separate announcements that Starbucks had become bureaucratic, that he recognised that there was a risk of having too many of its outlets in the United States and that customer service needed improving. He refused to rule out job cuts.

The announcements lifted shares in the group, which jumped 1.49 per cent to $18.38. However, in just over a year, the shares have halved in value after the chain admitted that for the first time in its history — it was founded in Seattle in 1971 — the average number of transactions in its stores in America had fallen during the fourth quarter of the year. It also said that it would slow down the rate of new openings in the US.

The company has suffered from rising raw material costs, with milk prices in particular increasing sharply, forcing the group to raise prices twice last year. Americans have also cut back on spending amid the credit crisis, the worst property slowdown for 16 years and higher fuel costs. To compound Starbucks’ worries, as its customer base has grown, the percentage of its customers earning lower incomes has increased. Those customers are more likely to cut back on a latte or frappuccino than their wealthier counterparts.

Starbucks has also been forced to cope with growing competition within the $1 billion-a year (£490 million) ready-to-drink coffee market in America and yesterday McDonald’s, its cheaper rival, said that it was introducing coffee bars in all its restaurants across the country to compete more aggressively with Starbucks.

Yesterday, Mr Schultz said that he would be controlling the day-to-day running of the company, which would include closing underperforming US stores. Wall Street analysts have pointed out that the number of Starbucks stores and their proximity to each other meant that the overall rate of sales growth had slowed.

He also said that he would be accelerating the rate at which Starbucks opened new stores overseas.

The new strategy calls into doubt the statement made by Starbucks at the end of last year, when Mr Donald denied that the company had saturated the market in the United States. At the time, Mr Schultz also insisted that customers of its cheaper rivals would return eventually just because “they are not going to be satisfied with the commoditised experience or the flavour”.

Mr Donald joined Starbucks in 2002 from Pathmark Stores, the grocery chain, to head Starbucks’ North American business. In 2005, he took over as Starbucks’ president and chief executive.

Yesterday, Mr Schultz said: “We must address the challenges we face and we know what has to be done.”

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