Commentary

Starbucks Pressing Ahead With Store Openings, New Offerings

Starbucks announced Q3 fiscal 2019 results yesterday that have Wall Street frothing with enthusiasm over president and CEO Kevin Johnson’s multi-pronged strategies to both expand the company's footprint and increase traffic into existing stores.

“Starbucks raised its full-year earnings and revenue forecast Thursday after more customers returned to cafes in the U.S. and China for pricier drinks. Shares of the company jumped 6.5% in extended trading. The coffee chain’s stock, which has a market value of $110.2 billion, is up 41% so far this year,” CNBC’s Amelia Lucas reports.

“Our two targeted long-term growth markets, the U.S. and China, performed extremely well across a number of measures as a result of our focus on enhancing the customer experience, driving new beverage innovation and accelerating the expansion of our digital customer relationships. Given the strong momentum across our business, we are raising our full-year financial outlook,” Johnson says in the release announcing the results.

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“Starbucks has been trying to make its menu more appealing by adding new beverages such as the Dragon drink and Cocoa Cloud Macchiato, while also expanding the delivery side of its business with new partnerships,” writes Reuter’s Nivedita Balu. (See story below for more on delivery options.)

“The added food options and Nitro Cold brew, a rich coffee that has a foamy texture like beer, lured more customers to stores during lunch hours, which is typically the slowest time of the day, the company said. Those efforts led to a 3% growth in traffic in the second quarter,” Balu adds.

“[Traffic is] an area where Starbucks has struggled,” Edward Jones analyst Brian Yarbrough tells Balu. “A lot of investors were asking: ‘When are you going to see a traffic increase?’ … This is a nice quarter on that standpoint.”

Another of the Johnson strategies to “achieve growth at scale” that’s working is adding more stores.

“In the third quarter, the company opened 442 net new stores, one third of them in China. It opened its 30,000th store this year, and closed out the quarter with over 30,600 stores,” Danielle Wiener-Bronner reports  for CNN Business.

But if you think that if you’ve seen one Starbucks store, you’ve seen them all -- think again.

“While there are certain things you can expect at every store -- ethically sourced coffee, flavorful speciality drinks, great customer service and free wi-fi -- the company has worked to create unique locations offering one-of-a-kind experiences, from reserve roasteries and tasting rooms to Starbucks' first-ever coffee farm,” Newsweek’s Daniel Avery writes  in the introduction to a piece titled “The 8 Most Beautiful Starbucks in the World.”

Only one is in the U.S.: a 23,000-square-foot reserve roastery opened in Manhattan's Meatpacking District last December.

“It's weird. Some people start at the beginning -- I start at the end,” Starbucks chief design officer Liz Muller tells Avery. “I want to know what will happen in a place, and how people will enjoy it, and then the colors and the textures starts forming. I’m thinking, ‘What can happen here? What is the feeling people must have when they walk in? How can this be different -- something that’s not already out there, something the world has not yet seen?'”

The Seattle-based chain is not operating in a vacuum, of course.

“Starbucks is facing tougher competition from smaller chains of upscale coffee shops and from Dunkin’ Brands Group Inc., which is seeking to update its image and offerings, including the addition of imitation-sausage breakfast sandwiches with Beyond Meat Inc. patties. Abroad, Luckin Coffee Inc., a Chinese company that specializes in delivery and mobile ordering, said Monday that it had signed a partnership to open coffee shops in the Middle East and India,” Heather Haddon observes  for The Wall Street Journal.

Meanwhile, it’s also working well with others.

“The company has been introducing new products in partnership with Nestlé. The companies have launched lines of Starbucks coffee creamers and Nespresso pods through the alliance, in addition to adding menu items in cafes,” CNN’s Wiener-Bronner writes.

Starbucks also increased U.S. membership in its loyalty program by 14% to 17.2 million during the quarter and gave members more flexibility in how to spend their points, according to  the Associated Press. Around 42% of total U.S. spending came from loyalty members.

Running for President in 2020 may not have been  one of former chairman and CEO Howard Schultz’ better ideas, but it appears his decision to turn over  the reins of the company to Johnson a few years ago was.

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