World's biggest coffee company
Starbucks Corporation
(
SBUX
) recently announced its long-term objectives pertaining to store
expansion and growth strategies for each of its segments; its
entry into the tea industry and its initiatives to boost consumer
relations. The company plans to take the following steps to
ensure growth in the upcoming fiscal years.
Segment Specific Plans
The
Americas business
has witnessed a substantial turnaround since the last couple of
years. The segment witnessed 9% growth in net sales to $2.5
billion in the fourth quarter of 2012, driven by 7% growth in
same-store sales and new store openings.
The company intends to open more than 3,000 new stores and
remodel many more in the next five years in order to capitalize
on the strong demand for Starbucks products in America. By the
end of 2013, Starbucks customers in the U.S will be able to enjoy
La Boulange products and Evolution Fresh juices in
company-operated stores.
Starbucks has also been witnessing strong performance in the
China-Asia-Pacific (CAP)
segment. In fact, net revenue grew 28% in the fourth quarter of
2012, driven by a 10% rise in same-store sales and new store
openings. China, Thailand, Singapore and Australia all posted
strong performances.
The company believes China will become its second-largest market
by 2014, surpassing Canada. The segment will have 4,000 stores by
the end of 2013, of which 1,000 will be in Mainland China, 1,000
in Japan and 500 in Korea.
China is one of the most important markets for Starbucks and
the company plans to have 1,500 stores in 70 cities in 2015.
Starbucks has opened its first three stores in India and plans to
open a fourth store in early 2013. The company also intends to
open its first store in Vietnam.
Europe, Middle East and Africa
segment witnessed a 2% decline in net revenue to $283.7 million
in the fourth quarter of 2012, hurt by flat traffic and currency
headwinds. However, revenue and profit is expected to improve
significantly over the next five years. Also, the company intends
to focus on brand building, generating more revenue from the
existing stores and increasing licensing agreements.
The
Consumer Packaged Goods (CPG)
(formerly known as Channel Development (CD)) segment includes the
U.S. Foodservice business and also sells whole bean and ground
coffees, premium Tazo teas, a variety of ready-to-drink
beverages, Starbucks VIA Ready Brew, Starbucks coffee and Tazo
tea K-Cup packs, and Starbucks super-premium ice creams.
This high-margin, high return on capital business reported 32%
revenue growth in the fourth quarter of 2012, fueled mainly by
higher sales of Starbucks branded K-Cup portion packs, which are
fast gaining traction. The international footprint of this
segment is expected to double by 2015. Starbucks plans to build
100,000 distributions centers in 20 countries. A customer loyalty
program, My Starbucks Rewards, will also be introduced in 2013.
Plans Regarding Teavana Acquisition
On November 14, 2012, Starbucks agreed to acquire Atlanta-based
tea store chain
Teavana Holdings, Inc.
(
TEA
) for approximately $620 million in cash. The acquisition will
bring together Starbucks' expertise in real estate, style and
store management and Teavana's competencies in global tea
industry.
Teavana operates through 300 mall-based stores, which Starbucks
plans to expand as well as establish new standalone Teavana
neighborhood stores domestically as well as internationally.
The acquisition will enable Starbucks to expand in the $40
billion global tea market and claim a leading position. Starbucks
is constantly on the lookout for new additions to its product
portfolio, other than coffee, like La Boulange products and
Evolution Fresh juices. Teavana is another step in that
direction.
Connecting with Consumers
Starbucks connects with its consumers through its social,
Internet, mobile, loyalty and cards programs. Starbucks cards are
now used for 25% of the transactions in the U.S and the money
loaded on the cards grew over 20%. The company expects 10% of the
payments to be made using the mobile application by the end of
fiscal 2013.
We are positive about the company's long-term plans. We
appreciate Starbucks' strong market position, new product
launches, rapid growth in China as well as a solid turnaround in
its U.S. business.
Following the solid fourth quarter results, Starbucks upped
its forecast for earnings, operating margins and global net new
stores for fiscal 2013. However, poor sales in Europe due to
depressed macroeconomic conditions keep us on the sidelines.
Starbucks carries a Zacks #2 Rank in the near term (Buy rating).
Currently, we have a Neutral recommendation on Starbucks over the
long term.
STARBUCKS CORP (SBUX): Free Stock Analysis
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TEAVANA HOLDING (TEA): Free Stock Analysis
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