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Thursday, October 5, 2006 - Page updated at 04:03 PM

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Starbucks ups store goal to 40,000, unveils iTunes pact

SEATTLE – Starbucks, its stock surging on healthy same-store sales, today set a new long-term goal to have 40,000 coffee stores worldwide, 10,000 more than its previous target.

In a meeting with financial analysts in its hometown of Seattle, Starbucks also announced a partnership with Apple Computer to feature the music it sells in its stores on Apple's iTunes online music service.

The specialty coffee retailer did not give a timeline for its long-term growth plans but said it expects to have more than 14,000 stores worldwide by the end of next year. There are currently about 12,000 Starbucks stores around the world.

Starbucks said 20,000 of its stores will be in the United States.

"We've seen the Starbucks experience become universally accepted around the world," Starbucks Chief Executive Jim Donald told analysts and journalists.

Starbucks said late Wednesday that sales at stores open at least 13 months increased 6 percent for the five weeks ended Oct. 1, compared to the same period ended Oct. 2, 2005. Analysts polled by Thomson Financial had predicted same-store sales would increase 3.3 percent.

On Wednesday, Starbucks' shares climbed $1.95, or 5.7 percent on the report, to close at $35.96, its highest close since early July. Today, the shares rose another 7.6 percent, up $2.73 to $38.69. The stock has traded between $24.86 and $39.88 over the past year.

Starbucks' expansion plans are being fueled in part by a customer base that is broadening to include people with lower incomes and education levels, said Anne Saunders, senior vice president of global brand strategy and communications. Five years ago, the company said the average income for a person visiting a U.S. Starbucks for the first time was $92,000. Now, the company says the average income for first-time customers is $80,000.

Starbucks also said it is seeing more new customers without a college degree, and is seeing an increase in first-time visitors who are Hispanic.

The average age of first-time customers has increased over the five-year period, from 40 to 42 years old, which Saunders attributed in part to an aging U.S. population.

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Saunders said the company believes that one key reason more people don't go to Starbucks is because it isn't convenient — which is why it thinks it can support such massive growth.

Saunders also said Starbucks no longer thinks of its main competition as just high-end coffee retailers — instead, it is going after every cup of coffee consumed in the United States. Despite its ubiquitous presence, Starbucks Chairman Howard Schultz said the company believes it only captures about 8 percent of the overall U.S. coffee market.

The Starbucks' deal with iTunes is evidence of the company's growing interest in expanding beyond coffee to offer more entertainment, including books, movies and music.

But the strategy is getting some tweaks. Starbucks also said today that it was scrapping plans to offer the ability to burn custom CDs in its regular coffee stores. Ken Lombard, senior vice president for Starbucks' entertainment division, said Starbucks will continue to offer that feature in its music-focused Hear Music Coffeehouses, and remains committed to those stores.

Lombard also conceded that the box office returns for the company's first movie promotion, "Akeelah and the Bee," were disappointing. But he said the company still likes the idea of promoting a movie and selling soundtrack CDs and movie DVDs in its stores.

Copyright © 2006 The Seattle Times Company

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