Jim Donald has served his last latte, and Howard Schultz is dusting off his barista cap.

Donald, chief executive of Starbucks, will step down and be replaced by chairman Howard Schultz, the company announced today. Schultz ran the company from 1987 to 2000, which was a period of tremendous growth for it. He has served as its chairman since then.

Starbucks faces growing competition for the coffee market from fast-food chains such as McDonald's, which is planning to open espresso bars in its locations later this year. Fears of an economic recession may also weigh on consumers' minds as they contemplate $4 lattes.

After enjoying healthy growth for years as the company rapidly expanded, Starbucks shares have fallen more than 35 percent since August.

But investors are clearly pleased with today's announcement. Starbucks shares surged 7 percent in trading after hours.

Schultz has already announced a series of initiatives on his agenda for change. They include slowing the growth of new stores in the U.S. and "reigniting the emotional attachment with customers." Starbucks will also accelerate its expansion internationally.

“Taken together, these initiatives will help transform Starbucks and drive the company’s enduring success," Schultz said in a statement. "We know that we can improve our performance by getting back to the essence of what drove Starbucks' past success—our passion for the business and a complete focus on the customer and our relationship with our people."

Also on Portfolio.com
Business Spin: Decoded: Starbucks Goes Back to Basics
Market Movers: Why Starbucks is Good for Small Coffee Shops