Starbucks to continue caffeinating the world
Jubilant investors have decided Starbucks is worth $3.8 billion more than it was Tuesday, based on a strong sales report and the company's...
Seattle Times business reporter
Jubilant investors have decided Starbucks is worth $3.8 billion more than it was Tuesday, based on a strong sales report and the company's plan to more than triple its stores to 40,000 worldwide.
About half of the stores will be in the United States, where Starbucks currently has 8,800 shops.
Executives upped the goal from 30,000 locations, because they see few signs of market saturation, even in areas like Seattle, where the world's largest coffee chain would seem to have reached a limit.
"It defies standard retailing knowledge," Jim Alling, president of Starbucks' U.S. operations, told a group of analysts and reporters Thursday at the company's biennial analyst conference at Pier 66 in Seattle.
Starbucks continues to attract more customers at existing stores even as new stores open nearby, "in some cases in the same building," Alling said.
Evidence of that includes growing sales at company-operated stores in the United States, which averaged more than $1 million per store in the fiscal year just ended.
Starbucks spills the beans Some of what financial analysts heard Thursday at a conference in Seattle:
Launch of a Starbucks Entertainment area on Apple's iTunes.
Rollout of warm breakfast items to about 6,500 stores by October 2008.
Joint venture with Pepsi to offer coffee and cocoa through vending machines in 2007.
Average store revenue tops $1 million a year.
Target customer wait time of 3 minutes met 60 percent of time.
Growth target is 40,000 stores worldwide.
New countries with stores: Egypt and Brazil this year, Russia and India in 2007.
Foreign countries with stores by the end of 2007 will number 40.
Sales at new stores are rising as well, with average first-year sales for company-operated stores in the United States at $920,000.
The company also announced a new Starbucks Entertainment area on Apple Computer's iTunes Web site, which will feature music selected by Starbucks for customers to download.
The coffee company would not disclose details of the deal but said it did not pay Apple to be on the site.
Starbucks also unveiled a vending machine that dispenses made-to-order coffee and cocoa, which it plans to roll out next year.
And it revealed that after much testing in markets, including Seattle, it will install ovens in most of its U.S. stores over the next couple years. Currently, the ovens are used to heat breakfast sandwiches, which Starbucks debuted this week in New York City.
Analysts applauded each new revelation, while investors drove shares up 8 percent in regular trading to $38.69, then another 1 percent to $39.07 in after-hours activity.
Those gains followed a 6 percent jump Wednesday, when the company released a strong September same-store sales report.
Besides approaching an all-time high, the stock price pushed Starbucks' market capitalization to $29.5 billion, a 15 percent increase in two days.
Starbucks will no longer disclose monthly same-store sales numbers because of the short-term swings it provokes in the stock price, said Chief Financial Officer Michael Casey.
The company will release figures for stores open at least 13 months on a quarterly basis.
A disappointing monthly sales number sent shares down 9 percent in one day this summer, just as an unexpectedly high 6 percent figure for September helped boost shares this week.
"The numbers [on Wednesday] blew so many people out of the water," said Don Gher, chief investment officer of Bellevue-based Coldstream Capital Management, which manages about $1 billion for high-net worth individuals. He holds Starbucks shares personally and in clients' portfolios.
More than 70 percent of Starbucks' stores are in the United States, and about 70 percent of the 2,400 stores it plans to open this fiscal year will be in this country, too.
The company estimates that 14.6 percent of the U.S. population visited a Starbucks in 2005, leaving room for growth.
Its appeal is broadening as well, with the average household income for new customers falling from $92,000 five-plus years ago to $80,000 now.
More than half of new U.S. stores will have drive-through windows.
Those stores have higher revenues and are slightly more profitable than ones without drive-throughs.
Executives are working to improve wait times at the drive-throughs, where it takes longer to be served than in the store.
"The customers let us get away with it, but they shouldn't. We should do better," Alling said.
Eventually, Starbucks hopes to have 20,000 international locations. Currently it has 3,600 stores outside the United States and plans to add 700 over the next year. By 2011, it expects to be in more than 50 countries.
The highest number of international stores is slated for the Asia-Pacific region, where the company has 1,700 locations today but wants 10,000.
The biggest increase is expected in Latin America, where Starbucks has 210 stores today but plans to have 3,500.
Over time, it also wants to have 1,500 locations in Canada and 5,000 in the combined Europe, Middle East and Africa area.
Later this year, Starbucks will open a store in Cairo, Egypt, its first footprint in Africa. The company also plans to open its first store in Brazil this year and expand to Russia and India next year.
Repeatedly during the all-day conference, executives emphasized that Starbucks promotion of the movie "Akeelah and the Bee" and the sale of CDs and books are mostly to connect with customers rather than become major revenue streams of their own.
About 80 percent of sales inside stores are of coffee-related products, such as drinks and coffee beans. Food, CDs and other items make up the remaining 20 percent.
"At our heart, we want to remain a coffee company," said Anne Saunders, senior vice president of global brand strategy and communications.
Melissa Allison: 206-464-3312 or email@example.com
Incorrect information in this article, originally published October 6, was corrected October 6. First-year sales at new company-operated Starbucks stores in the United States average $920,000. An earlier version of this story incorrectly reported the figure as $920 million.
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