Starbucks Smells the Money With 3,000 New Locations – and $450 Gift Card


Starbucks is certainly feeling bullish these days. Just a few years after scaling back its US retail footprint in a rocky economy, the coffee giant is now eyeing “accelerated global growth” with plans to open thousands of new locations. It’s even offering a luxe “superpremium” gift card that’ll cost $450 to put in a Christmas stocking.

In a presentation at the company’s biennial investor conference today, Starbucks CEO Howard Schultz glowed with the news that he plans to boost the number of Starbucks cafes in the Americas by more than 20 percent — opening more than 3,000 new shops over the next five years, including 1,500 in the United States, still its biggest market.[more]

Schultz also outlined an intensification of the chain’s reliance on tea and juice drinks as much as coffee in an era of better-for-you beverages that so far has eluded Starbucks’ signature drink.

The news comes as Starbucks is reportedly ready to pay up and settle its corporate tax headache in the UK. “We are engaged in discussions to make a contribution — despite the fact that we have not made a profit — that would legally put us in a position to pay income taxes,” Schultz told Reuters.

It was only four years ago that a wounded Starbucks was beating a hasty retreat in the US: It closed 10 percent of its American stores and slashed the number of new openings it planned. Schultz had just returned to the CEO position of the company that he had co-founded, and cutbacks were one of his first major gambits back at the helm.

But nowadays, the company has explained that the problem with all those stores wasn’t simply that there were too many but largely that they were in the wrong places, reflecting what Schultz has called an “undisciplined” approach and “growth for growth’s sake.”

This time around, he vowed, the company will grow more intelligently to a total of more than 20,000 cafes worldwide by 2014, up from about 18,000 now. Much of the growth will come in China, but the majority of Starbucks’ revenue still comes from its more than 11,100 cafes in the United States. Adding at least 1,500 locations back will boost the number in the U.S. by about 13 percent.

At the same time, Schultz is continuing to push Starbucks’ evolution in other major ways. He told investors that the company will tilt its growing investment in the tea business toward its recently acquired Teavana brand, itself a chain with 300 shopping-mall locations, and away from the Tazo tea brand that Starbucks long has sold.

As Starbucks’ press release noted about regional plans:

•    Cliff Burrows, president, Starbucks Americas and U.S., announced that his region planned to add more than 3,000 net new stores, and renovate thousands more stores, over the next five years. At least half of the new stores are expected to be in the strong, rapidly growing U.S. market where revenue grew by 9 percent in fiscal 2012. Burrows also announced plans to leverage the recently completed Evolution Fresh and La Boulange acquisitions — and to increase sales and drive customer frequency throughout the day — by making La Boulange products available in more than 2,500 U.S. company-operated Starbucks stores and making Evolution Fresh juices available in more than 5,000 U.S. company-operated stores by the end of 2013.

•    John Culver, president, Starbucks China and Asia-Pacific, said his region — the company’s fastest growing retail store market — will approach 4,000 stores by the end of 2013, including 1,000 in Mainland China, 1,000 in Japan, 500 in Korea and its first store in Vietnam. Culver highlighted China as Starbucks most successful new market entry to date, and announced that China is expected to become Starbucks largest market outside of the U.S. in 2014 and is on plan to have 1,500 stores in 70 cities in 2015. At the conference, Culver noted the positive results achieved so far this quarter. Culver also provided an overview of the hugely successful opening of the company’s first three stores in Mumbai, India – opened since October (in partnership with Tata) – and reaffirmed plans to open the company’s first store in Delhi in early 2013.

•    Michelle Gass, president, Starbucks Europe, Middle East and Africa (EMEA), said Starbucks is focused on building brand relevancy, unlocking opportunities in its company-operated stores and accelerating licensing agreements in her region. Gass reaffirmed the company’s confidence that the region will achieve meaningful revenue and profit growth over the next five years, and deliver against its goal of mid-teen margins over time. Gass said, “Our past performance is not indicative of the sizable and profitable opportunity across EMEA. We have a comprehensive set of initiatives that will build on our investments over the past decade to ensure sustained and healthy profitability for the region.”

As the Wall Street Journal reported from the investor presentation, Starbucks plans to continue its emphasis on a CPG-retail business that eventually could grow as large as the cafe chain.

Jeff Hansberry, president of channel development and emerging brands, told the investor conference about grocery store tests of signatue displays modeled after the ones in its cafes, with the addition of touch screens. Now being tested in 12 grocery stores in Chicago, Seattle, Northern California (and a Safeway store in Highlands Ranch, Colorado), the signature coffee aisle is already selling two to three times more Starbucks-brand coffee than stores without them.

The Wall Street Journal added,

Premium coffee and single-serve coffee pods are among the higher margin items in a grocery store, which is why fancier Starbucks displays are liked by grocery chains, said Troy Alstead, Starbucks’s chief financial officer. “The whole idea to reshape the coffee aisle is something they believe will be profitable to them,” Alstead said.

Shoppers will also have another Starbucks-like experience at the supermarket next summer, when people can earn rewards on their Starbucks cards when they purchase coffee in the grocery store; those perks can then be redeemed at Starbucks stores. “It’s a loyalty builder,” Hansberry said.

One way to tell that Starbucks is feeling its oats again is that it is participating in a one-off promotion with offering 5,000 very expensive gift cards that are specially etched out of steel, at a production cost of about $50, and loaded with $400 in product value.

The $450 Starbucks Metal Card won’t be available at any Starbucks store, although there is a stylish Rodarte gift card as an alternative.

But they could be a great gift for true Starbucks fiends. And, of course, any Starbucks store will be happy to swipe the card when you want to buy your java.