Wednesday, July 18, 2018
Business

CEO Schultz says he'll stay 'deeply engaged' as Starbucks grows to 37,000 stores in next five years

Starbucks plans to add 12,000 stores around the world, expand its high-end drinks and stores, and build on its mobile offerings — including being able to place orders by voice command or messaging — as part of the company's five-year plan to grow sales and profit.

The Seattle-based company presented a three-pronged approach to its next five years at a meeting in New York City with Wall Street investors Wednesday.

The overall approach had been outlined by the company before, but executives provided more details in Wednesday morning's presentation.

Starbucks chairman and CEO Howard Schultz, who last week announced he would be handing over the CEO reins to company president Kevin Johnson next spring, reassured investors that he would remain "deeply engaged" with the company.

"I'm not leaving," he said. "I love this company. It's so personal to me."

Schultz reiterated that he would be leading the company's premium businesses, focusing on the design and development of its expansive, showpiece Roasteries and expansion of its Reserve retail stores, which sell and brew the company's small-lot premium coffees.

His, and the company's, focus on the high end of the coffee market does not indicate trouble with the traditional core Starbucks stores, he said. Sales at such stores in the U.S. that have been open at least a year — or comparable sales — had seen growth slow down earlier this year.

"I know some of you are concerned about the slowdown in U.S. comps which, candidly, I do not share," Schultz said. "Our core business has never been stronger in the U.S. and around the world."

The company aims to increase its sales by 10 percent and its earnings per share by 15 to 20 percent over the next five years. It's projecting mid-single digit growth in annual comparable sales — sales in stores open at least a year.

Its planned addition of 12,000 stores will bring the company's total store count to 37,000 by 2021.

In addition, the company, as previously announced, plans to open 20 to 30 Roasteries and 1,000 Reserve stores over time.

Starbucks opened its first Roastery in Seattle two years ago: a 15,000-square-foot showplace where the company roasts its small-lot premium Reserve coffee beans and where it features a Reserve bar, which employs five methods of brewing: manual, Clover, pour-over, French press and siphon.

The Seattle Roastery "is a runaway success any way we would measure it," with an average ticket four times larger than the typical Starbucks store, Schultz said.

The company plans to open its second Roastery, about twice the size of Seattle's, in Shanghai next year, with others planned for Tokyo and New York in 2018, and a fifth at a location in Europe that the company plans to announce next year.

Its Reserve stores will be about 3,000 to 5,000 square feet, landing between the size of its traditional core stores and the Roasteries. Such stores will feature the Reserve bar and beans, as well as food from high-end Italian bakery firm Princi, which Starbucks invested in earlier this year. The first Reserve stores will open in Seattle and Chicago in the second half of next year.

The company also plans to open standalone Princi stores in Seattle, New York and Chicago in late 2017 and early 2018.

The Princi partnership is part of Starbuck's plan to elevate its food game. Food now represents 20 percent of the company's U.S. retail sales, Johnson said. But while its breakfast sandwich sales have grown strongly, it's still looking to gain more customers for its lunch offerings, he said.

On the mobile front, Starbucks plans to roll out My Starbucks Barista, a feature on its app that will allow customers to place orders by voice command or messaging interface. The feature will be released in beta form to a limited number of iOS users starting in early 2017, with more iOS and Android users added later on, the company said in a news release.

The company has boosted use of its mobile app and has used its mobile app to increase business by tying its loyalty rewards system to use of the app. Currently, there are more than 12 million Starbucks Rewards members, up 18 percent year over year, the company said.

Of the 8 million mobile customers, one out of three use the app's mobile order-and-pay feature, which allows them to place an order and pay via the app, bypassing lines.

The company also reiterated its plans for growth in China, saying it currently operates 2,500 stores there and remains on track to open more than 5,000 stores there by 2021.

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