December 5, 2012 / 1:22 PM / 7 years ago

Starbucks back on expansion path in Americas, China

NEW YORK (Reuters) - Starbucks Corp plans to increase the number of its cafes in the Americas by more than 20 percent by opening more than 3,000 new shops there in the next five years as it looks to rely on tea and juice as much as coffee, it said on Wednesday.

A customer with a cup of coffee leaves the new Starbucks store in San Jose June 20, 2012. REUTERS/Juan Carlos Ulate

The world’s largest coffee chain is also finished with acquisitions for the time being, after buying juice seller Evolution Fresh for $30 million and Bay Bread LLC’s La Boulange Bakery for $100 million over the last 13 months. Starbucks also has an agreement to purchase tea store chain Teavana Holdings Inc for $620 million.

“We’re pretty full up at this time in terms of our resources and capabilities,” Chief Executive Officer Howard Schultz said at Starbucks’ investor conference in New York on Wednesday. “At this moment in time, we have enough to handle.”

Food long has been a weak link at Starbucks, which plans to roll out sweet and savory La Boulange pastries and other goodies at 2,500 of its company-operated U.S. shops by the end of next year. Starbucks also expects to have Evolution Fresh juices in more than 5,000 U.S. stores by the end of 2013.

The company is also expanding and experimenting with new retail concepts.

It has opened four Evolution Fresh juice stores and one Tazo tea shop in the United States, and it plans to add “tea bars” to existing Teavana stores.

The goal at Teavana is to replicate the success the company had adding coffee drinks at its early Starbucks stores, which sold whole bean coffee.

“There is always a risk when you take on all these brands,” Bernstein Research analyst Sara Senatore said, but she added that Starbucks had mitigated that risk by making deals that fit with its long-term growth plans, which focus on increasing its reach beyond coffee and the four walls of its cafes.

Schultz admitted that Starbucks’ growth in 2007 and 2008 - the years before its business plunged with the financial crisis - was “undisciplined.” The company is not returning to that prior strategy of “growth for growth’s sake,” he said.


Starbucks’ consumer packaged goods business, which sells such items as whole bean coffee and bottled drinks through grocery stores and other retailers, could one day be as large as the cafe chain, Schultz said.

Investment Technology Group analyst Steve West said he was encouraged that the company is building a “tiered strategy” for those packaged goods. Based on the company’s moves thus far, it appears that Starbucks coffee and Teavana teas are in the core/premium categories, while Seattle’s Best Coffee and potentially Tazo tea are more mainstream brands.

When Starbucks’ fiscal year ended on September 30, the company had 18,066 shops around the world, with just over 12,900 in the Americas. The United States dominates that region and will get more than half of the 3,000 planned new stores that the company announced on Wednesday.

Starbucks expects China to overtake Canada as its second-largest market in 2014. The fast-growing China and Asia-Pacific region will have nearly 4,000 cafes by the end of 2013, including 1,000 in mainland China, where Starbucks said it was on track to have 1,500 cafes in 70 cities in 2015.

John Culver, president of Starbucks’ China/Asia Pacific business, said sales at established stores in the region held up in October and November, following a 10 percent increase in the fiscal fourth quarter that ended September 30.

“We have seen the momentum we had in the fourth quarter carry over,” Culver said.

Investors are closely tracking Starbucks’ new at-home Verismo coffee and espresso brewer, which the company is using to grab a piece of the fast-growing single-serve market dominated by Green Mountain Coffee Roasters Inc and Nestle SA.

The machine sells for $199 or $399 depending on size and functions. Over time, Starbucks expects to get significant revenues from sales of the coffee and milk pods used with Verismo.

Early reviews on Verismo have been mixed - with the main complaint being the unappealing taste of the milk from the shelf-stable milk pods that have been held up as selling point for Starbucks’ machine.

Jeff Hansberry, Starbucks’ president of channel development and emerging brands, said Verismo sales are “in line with our expectations” but he did not answer an analyst’s question about the machine’s strengths and weaknesses.

Separately, Starbucks has said it would announce changes to its UK tax policies this week, following criticism from lawmakers and the media over strategies that let it minimize payments.

Starbucks shares were down 1.5 percent at $50.32 in afternoon trading on Nasdaq.

Reporting by Lisa Baertlein in Los Angeles; Editing by John Wallace, Lisa Von Ahn and Tim Dobbyn

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