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Starbucks May Revamp Your Portfolio for Growth

May 21, 2014 | About:
abirk

abirk

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Starbucks Corporation (SBUX) is a marketer and retailer of coffee, and has its presence in about 60 countries. The company started off in 1987 with a mere 17 stores. Now, Starbucks operates more than 17,650 locations across the globe, and its brand is universally recognized. This year seems to be great for this Seattle-based coffee giant.

Recent Financials

On April 22, Starbucks released its second-quarter earnings. Global sales at Starbucks locations open for at least 13 months grew by 6%, which beat the consensus estimate of 5.4%. Net earnings were up 9.4% year-over-year to $0.56 per share. However, revenue came in at $3.87 billion, while the estimate had called for $3.95 billion. Starbucks' revenue fell short of the estimate because of bad winter weather in the U.S.

After the earnings call, Starbucks shares rose around 1% in extended-hours trading.

Developments Recently

Starbucks believes that adding alcoholic drinks to its menus will attract more customers to its stores at night. This is why the company has started offering these drinks in its cafes; currently, the company offers these drinks at 26 locations. Starbucks plans to extend this service to more than 1,000 of its cafes in the coming years.

The company's CEO Howard Schultz said that a typical Starbucks customer spends around $5 per visit. The purchase of a glass of beer or wine could easily double this figure. However, the company won't go beyond beer and wine, and it has no plans to offer this service outside the U.S.

Apart from introducing alcoholic drinks, Starbucks is also focusing on developing new tea varieties. In March, Howard Schultz and Oprah Winfrey announced a partnership to co-create Teavana Oprah Chai. The tea will be available in Starbucks and Teavana stores across the U.S. and Canada, while Starbucks will make a donation for each product sold to the Oprah Winfrey Leadership Academy Foundation. Oprah has personally developed the tea with Teavana's leading teaologist Naoka Tsunoda. The spiced tea is a mixture of ginger, cinnamon, cardamom, and cloves, blended with loose-leaf black tea and rooibos.

The company will soon roll out its new Fizzio carbonated drinks, which did really well in the test markets last summer, in Singapore, Korea and China. Starbucks is confident that these drinks will drive more traffic to its stores during the afternoons.

Potential in Asia

The company remained aggressively expanding its stores in China and Asia Pacific region. During the first quarter of 2014, it added almost 209 storesreflecting an increase of 5% in just one quarter.The company is determined to make China its biggest market outside US. With the company's success in Asia and expected profits for many years to come, the aggressive expansion plan seems to be the appropriate strategy.

International Presence

Starbucks has great potential in the area of selling tea. Tea consumption is much higher in the Middle East and Asia, where this coffee scion is still looking for big growth. The company purchased Teavana for $620 million. That brand is now the face of Starbucks' first stand-alone tea bar, located in New York City. Teavana is also going to be used as a rebranding for Starbucks' other tea brand, Tazo. One of Starbucks' biggest hopes has to be the possibility of selling tea in countries that have eschewed coffee. It is just one of the many companies looking to take its products to the international market.

Starbucks acquired La Boulange, a trendy, popular bakery started in San Francisco, for $100 million in 2012. Since acquiring La Boulange, Starbucks has added some of its great pastry items to its menu. It is planning to open up about 600 locations in North America, and another 600 in Asia. China is a key part of the company’s global expansion plans, with the store count in the nation set to rise to 1,500 by the end of 2015.

To Conclude

The business is one of the earliest coffee shop chains. Let’s accept the fact: Coffee is itself a great business. There is a large and worldwide base of repeat customers, especially morning customers, who will always need coffee. Even if the coffee production prices are up, customer willingness to pay higher prices remain mostly unwavering.

As consumers become more health conscious day by day, they prefer beverages such as juice, tea and coffee over soda and other carbonated drinks. This is the opportunity Starbucks can capitalize on. It can provide greater shareholder returns in the times to come. It is betting on the second most-consumed beverage after water and tea. The global tea market is worth $90 billion. This holds tremendous potential for the company.


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