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How Starbucks Changed the Coffee World

The first name that comes to your mind every time you think of a hot cup of coffee is Starbucks.

A cafe that started its journey with a store in Seattle's Pike Place Market in 1971 has become synonymous with coffee. Starbucks CorporationSBUX expanded massively after the original owners sold the chain to present chairman and CEO, Howard Schultz, in 1987. Starbucks has come a long way since its 1992 Initial Public Offering and currently operates 23,000 stores across 68 countries.

The first Starbucks store outside that U.S. was opened in Tokyo, Japan in 1996 which has now crossed 1,000 in the country. At present, Starbucks runs more than 1,700 stores in China, over 870 outlets in 15 Latin American marketsand around 800 stores in the U.K. through international partners.

From espresso and specialty roast and ground coffee to premium single-serve market, the Seattle-basedcompany commands a leading position in all coffee segments. Inaddition to fresh, rich-brewed coffees, Starbucks offers many complementary food items like pastries and snacks as well as a selection of premium teas and other beveragesat its outlets. It also offers breakfast sandwiches, lunch items as well as wine and beer at selected evening stores.

Moreover, Starbucks sells roasted whole bean and ground coffees, premium Tazo teas,a variety of ready-to-drink beverages and Starbucks and Tazo branded K-Cup packs through grocery, specialty retailers and foodservicechannels.

Importantly, the company enjoys a leading position in digital, card, loyalty and mobile capabilities. Its new digital technologies, like Mobile Order & Pay, are showing positive early results.

The Mobile Order & Pay service was launched last year and is now available at all company-operated outlets in the U.S. - more than 7,400 locations - as well as in 150 stores in London, U.K. This initiative allows customers to order before arriving at a Starbucks café and pick up the items at their selected Starbucks store, thus saving time.

The company also started food and beverage delivery service through its employees at New York's Empire State building in October. The company also expects to introduce food and beverage delivery in collaboration with on-demand delivery service, Postmates, in Seattle and other office buildings in New York before the year ends.

In order to expand its loyalty program, Starbucks formed strategic partnerships with companies like Lyft, Spotify and The New York Times. Per the deals, loyalty program members can earn stars for purchases made through these third parties, thereby generating an additional revenue stream for the coffee company.

Starbucks' shares have had a good run this calendar year, gaining 48% year-to-date. With a market cap of almost $89 billion,the company is increasing its global market share by judiciously opening stores in new and existing markets, remodeling existing stores, deploying technology, controlling costs and investing in aggressive product innovation and brand building.

Sales growth was exceptional over the past two quarters driven by solid global traffic trends while profits remained strong, despite a significant increase in investments.

We believe that digital efforts like Mobile Order & Pay and delivery services, new third-party loyalty partnerships, food and beverage innovation, Starbucks Reserve premium coffees and Teavana tea should fuel stronger sales trend in fiscal 2016.

Better top-line performance backed by a range of sales drivers and various cost saving initiatives will aid earnings, going ahead.

Starbucks has a Zacks Rank #2 (Buy). Investors interested in the restaurant sector may consider stocks like Bob Evans Farms, Inc. BOBE , Carrols Restaurant Group, Inc. TAST and Dave & Buster's Entertainment, Inc. PLAY . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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STARBUCKS CORP (SBUX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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