Starbucks 5-Year Plan: Lots of Stores, Food and Cold Drinks
Starbucks aims to add nearly 50% more locations by 2021 and plans to entice people to spend more with new products, store formats and technology as the coffee chain tries to prove that it will keep growing, even without Howard Schultz as CEO.
At an investor meeting Wednesday, Starbucks discussed everything from wheat-free and gluten-free breakfast foods to a partnership with Tencent Holdings Ltd in China that will allow patrons to send Starbucks gifts through the popular WeChat messaging app.
Another tech update is that members of its rewards program will soon be able to speak or message their orders into their mobile phones. And there will be plenty of stores where they can pick up those orders. Starbucks plans to open about 12,000 new stores by 2021, bringing its total to about 37,000. In China, it plans to open more than 5,000 shops, adding to the 2,500 that are currently open. Starbucks is opening stores in China at a rate of more than one store per day.
The coffee giant's ambitious store growth plans come after a year of slower growth at its longstanding locations. Global same-store sales rose 5% in fiscal 2016, with the number of transactions up just 1%. A year earlier, same-store sales were up 7%, with transactions up 3%.
Last week, Mr. Schultz said he would hand the CEO role to Kevin Johnson in April but stay on in an executive chairman role, working on projects such as the company's Roasteries and Reserve stores.
Those higher-end concepts, and adding some Reserve elements to a larger number of traditional Starbucks shops, "create this halo over the Starbucks brand," said Howard Penney, managing director of Hedgeye Risk Management. He noted that higher pricing of the upscale products can also help mitigate slowing growth in other parts of the business.
Mr. Schultz and Mr. Johnson were among the speakers Wednesday, but the company had other executives share plans throughout the day, a not-too-subtle way for Starbucks to show the strength it believes it has in its executive lineup. Global Chief Marketing Officer Sharon Rothstein, for example, discussed some of the chain's food plans.
In March 2015, Starbucks said it expected to see food grow from 18% of revenue in its U.S. shops to 25% by 2019. Now, it expects to hit the 25% goal by 2021. Currently, about 20% of revenue in stores comes from food, helped by sales of breakfast sandwiches more than doubling over the past four years. But as Ms. Rothstein noted, about 50% of traffic, or visits to stores, occurs after 11 a.m., giving the company huge opportunity to sell food later in the day. Plans including serving organic soups in certain regions.
Still, breakfast is key and in January, Starbucks will launch Sous Vide Egg Bites, which are wheat-free and low in calories. It plans to introduce a certified gluten-free breakfast sandwich in the spring.
For Starbucks, the setup of its shops may pose issues as it tries to expand its food business. "Starbucks is beverage first, food second," said Mr. Penney. Warm items have to be brought in and heated up at locations that were designed to execute a certain menu, one largely focused on beverages. At Roastery and Reserve locations, the company is partnering with Italy's Princi on food to elevate the experience. Starbucks also plans to open standalone Princi stores in Chicago, New York and its hometown of Seattle by 2018.
On the beverage side, the cold business is, well, heating up. Starbucks expects cold drinks to account for 50% of its sales in the future, up from 35% currently, helped by drinks that go beyond iced coffee, iced tea and its famous Frappuccinos. Cold brew and nitro cold brew are being rolled out globally.
The meeting was peppered with breaks to let the crowd try drinks such as new bottled Teavana Craft Teas coming in February under the joint venture with AB InBev announced this year.
In bottled coffee, Starbucks will introduce Cold Brew Cocoa and Honey with Cream in parts of the U.S. next spring and will bring bottled Frappuccino to parts of Latin America as part of its pact with PepsiCo.
Shares of Starbucks rose 2.3% to $58.76.