Starbucks anticipates only 1% growth in comparable-store sales globally in Q3 FY18, prompting the company to announce strategic priorities and initiatives to accelerate growth, regain revenue and earnings momentum and create long-term shareholder value by focusing on three key areas:
—Accelerating growth in the U.S. and China, its targeted long-term growth markets (with China its fastest-growing);
—Expanding and leveraging the global reach of the brand through the Global Coffee Alliance, its $7.15B partnership with Nestlé that was announced in May;
—Sharpening the focus on increasing shareholder returns.
Its strategic moves include closing 150 under-performing stores this fiscal year. In previous years, the Seattle-based chain has closed an average of 50 stores a year. New locations will continue to open in markets that demand it and it is “actively exploring strategic options to license company-operated stores in other appropriate markets.”
— Bloomberg (@business) June 20, 2018
It’s also looking to revive sales with new drinks such as the “Instagram-worthy” “pink drink” refresher made with mango and dragonfruit it’s adding in time to beat the summer heat in the U.S. and Canada, although it’s a permanent menu item as it’s scaling back “limited-time” special drinks.
Earlier this month, Starbucks raised the price of its brewed coffee by 10 cents to 20 cents at the majority of its company-owned stores in the U.S. Last month, the company revealed it’s selling Nestlé the rights to market, sell and distribute its packaged coffee and tea globally for more than $7 billion. It’s also preparing for the June 26th departure of chairman Howard Schultz, which was announced earlier this month.
“While certain demand headwinds are transitory, and some of our cost increases are appropriate investments for the future, our recent performance does not reflect the potential of our exceptional brand and is not acceptable,” stated Kevin Johnson, Starbucks president and CEO.
“We must move faster to address the more rapidly changing preferences and needs of our customers. Over the past year we have taken several actions to streamline the company, positioning us to increase our innovation agility as an organization and enhance focus on our core value drivers which serve as the foundation to re-accelerate growth and create long-term shareholder value.”
Accelerating growth in the U.S. and China
Areas it’s addressing as part of the renewed growth focus:
Customer-first: A key goal is greater agility in adapting more quickly to changes in consumer preferences. This includes accelerating product innovation around core beverages while leveraging the growing tea and refreshment category, as well as consumer behavior trends towards health and wellness.
Strategic store management: It’s optimizing its U.S. store portfolio at a more rapid pace in FY19, including shifting new company-operated store growth to under-penetrated markets, slowing licensed store growth and increasing the closure of under-performing company-operated stores in its most densely-penetrated markets. It anticipates approximately 150 store closures in FY19, from a historical average of up to 50 annually. In FY19, this will result in a slightly lower growth rate in net new company-operated stores.
Digital ‘depth’: It’s actively expanding the breadth and depth of digital relationships with current and new customers. The company has added 5 million new digitally-registered customers since April 2018 and 2 million active Starbucks Rewards members year-over-year to 15 million, up 13% from the previous year.
In FY19, the company expects newer digital initiatives to contribute one to two points of comparable-store growth in the U.S., supported by a redesigned Starbucks Rewards program that provides customers more choice around redemptions and payment, as well as expanded personalization capabilities for customers that have a digital relationship with the company.
Nestling with Nestlé: It’s “making progress” toward closing its Global Coffee Alliance transaction with Nestlé to accelerate and grow the global reach of Starbucks brands in Consumer Packaged Goods (CPG retail channels) and Foodservice, creating potentially 5 million new points of presence in 189 countries.
Licensing for growth: The company is “actively exploring” strategic options to license company-operated stores in other appropriate markets.