After some early victories in the breakfast war,
wishes to expand its conquest to the next battlefield -- lunch.
The beverage giant trounced the performance of most other
quick-service chains by posting a 7% jump in comparable-store
sales last quarter. Caffeinated beverages played a role in that
success, but it was breakfast food sales that really jolted
Starbucks' growth past its competitors this spring.
Winning in a tough market
That's all the more impressive given how tough it has been to
compete at breakfast. Just ask
. CEO Nigel Travis said in a recent call with investors that the
"competitive intensity" around that meal is hurting Dunkin's
business. Management took that opportunity to scale back its
full-year guidance for sales growth. Even
' Taco Bell, which directed a huge marketing budget toward
supporting its jump into the breakfast market, only managed
in the early morning hours. Despite the extra meal, Taco Bell
posted just 2% comps growth, the same gains it had managed in
three of the last five quarters.
's has been taking a hit as others have entered the breakfast
fray. As the breakfast leader, and with an outsized portion of
profits coming from those early hours, the fast-food giant can't
afford to cede the meal to competitors. Mickey D's doesn't break
out its sales details, but it seems likely that breakfast isn't
growing since revenue and profits were down overall last quarter
as customer traffic levels dove.
Starbucks had no such struggles. After a major ingredient
upgrade, its breakfast sandwich platform delivered 40% growth
over the prior year. That boost enabled food sales to contribute
2 percentage points of Starbucks' hefty overall 7% comps
The sales improvement didn't just come from higher prices,
either. Transaction volume also improved, which suggests that
customer traffic levels are still growing at a steady clip.
Starbucks' transaction growth. Source: Company financial
Just the start
From that strong start, Starbucks has plans to boost its food
offerings into the p.m. hours. And there is every reason for
investors to expect similar results there. In fact, two lunch
sandwiches introduced recently led to a quick jump in sales and
higher food attachment rates.
Panini sandwich. Source: Starbucks.
Chief Operating Officer Troy Alstead told investors in a
conference call that they can expect a big upgrade to Starbucks'
lunch program over the next year that is patterned after wins
like those. "This recent success has encouraged us to introduce
new [products] to the lunch line going forward, and we'll
continue to evolve our lunch program with this disciplined,
measured approach," he said.
The food opportunities don't stop there. Extra menu options in
the evening hours already include wine and beer in some
locations, with dinner-type offerings likely to bring growth as
Starbucks is far from running out of growth drivers. Its success
in the breakfast hours provides a playbook for steady expansion
into lunch -- and eventually evening -- food offerings.
The coffee giant's food sales have been stuck at 19% of
revenue for years, while management has said that the figure
should be closer to 25%. Investors saw the first signs of change
there last year, as food sales ticked higher, to 20%. But that's
likely just the beginning of a steady boost in the importance of
food to Starbucks' future.
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Starbucks Scores With Breakfast, Aims for
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