Starbucks Brews 5-Year Plan, Shares Hit 52-Week High

At its biennial Investor Day held in Seattle on Dec 4, Starbucks Corporation (SBUX) detailed an ambitious five-year plan to accelerate growth, pushing its share price to a new 52-week high of $82.30.

Management discussed in detail the innovative mobile commerce initiatives, expansion plans in China, plans to expand the evening program and double the U.S. food sales and opening of its first "roastery-café" in Seattle.

This range of new drivers is expected to push up the coffee giant’s revenues to $30 billion in fiscal 2019, up from $16 billion in fiscal 2014.

Mobile Order and Payplatform

Starbucks launched its “Mobile Order & Pay” initiative in the Portland, OR area on Dec 3 and plans to launch it nationwide by 2015-end. This initiative will allow customers to order before stepping in a Starbucks cafe. Mobile Order & Pay will be available for customers using the Starbucks app for iPhone in markets where is has been launched.

Starbucks also expects to introduce food and beverage delivery through users’ mobile devices in select urban markets in the second half of 2015.

Starbucks is undoubtedly the number one mobile payment app in the U.S. The company had 90% share of mobile payments in U.S. in 2013. Furthermore, nearly 16% of all its U.S. transactions take place through mobile, growing 50% annually. These new mobile initiatives are expected to quicken service, increase convenience and improve customer loyalty thereby driving transactions and spur traffic.

Starbucks witnessed slower-than-expected traffic in the American stores last quarter which management blamed on consumer shift away from “brick and mortar” retail to online sales. As such, CEO Schultz intends to focus more on leveraging the mobile and digital assets and e-Commerce platforms to create more revenue streams.

Unveils Starbucks Reserve Roastery

Starbucks also announced the scheduled opening of its first ever Starbucks Reserve Roastery and Tasting Room in Pike Street in Seattle on Dec 5. The unique concept will offer roasting, education and retailing in one café. With the roastery, Starbucks expects to double its small-batch roasting capacity of these unique super-premium arabica Reserve brand coffees to 1,500 stores globally.

Moreover, the company plans to open 100 upscale coffee stores over the next five years that will exclusively sell Starbucks Reserve coffees. It already operates such stores in Japan and Latin America.

Focus on Food

Starbucks is fast expanding its food offerings in the U.S. having launched premium bakery goods, breakfast and lunch sandwiches and salads to complement its drinks.

Starbucks plans to double its U.S. food sales to more than $4 billion over the next five years. Moreover, the company plans to expand its lunch menu and offer locally relevant snacks around the world.

Starbucks’ much talked about evening program – food, wine and beer offerings – available at some stores will be expanded to more stores in fiscal 2015, with plans of rolling it out in 20–25% of Starbucks stores in the U.S. by fiscal 2019. The evening program is expected to add $1 billion in revenues by the end of fiscal 2019.

Starbucks also plans to open small footprint express stores next year in New York City to cater to the on-the-go coffee drinkers. The express format follows the success of Starbucks’ highly popular drive-through concept.

We believe the digital/mobile efforts, coupled with increased food sales, new store formats, revamped lunch and evening platform and Teavana tea should spur traffic growth in fiscal 2015.

Expansion Plans in China, India, Japan and Brazil

Management believes that China and the Asia-Pacific (CAP) region will drive more meaningful business over the next five years supported by rapid unit growth, growing brand awareness and increased usage of the mobile/loyalty platforms.

Starbucks' business in China is rapidly growing due to innovative store designs, local product innovations and the success of “My Starbucks Rewards” program. At the investor conference, Starbucks announced plans to double its store count in China to over 3,000 by 2019.

In Japan, its second largest market outside the U.S., management expects to complete the purchase of full ownership of its Japanese joint venture — Starbucks Coffee Japan, Ltd. — by the second quarter of 2015. This, coupled with expansion in China, will further accelerate Starbucks’ growth in the CAP region.

Stocks to Consider

Starbucks carries a Zacks Rank #3 (Hold). Better-ranked restaurateurs include BJ's Restaurants, Inc. (BJRI), DineEquity, Inc. (DIN) and Ruby Tuesday, Inc. (RT). All these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on SBUX
Read the Full Research Report on BJRI
Read the Full Research Report on RT
Read the Full Research Report on DIN


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