Article

New beverages, food give Starbucks a lift in Q3

Food sales drove two points of comp growth in the U.S., and the breakfast sandwich platform surged 40 percent.

July 25, 2014 by Brenda Rick Smith — Editor, Networld Media Group

Starbucks reported Thursday global sales comp growth of 6 percent, marking the 18th consecutive quarter of global comp growth of 5 percent or greater for the company..

All of Starbuck's regions reported comp gains, with China/Asia Pacific leading the way at 7 percent. The Americas increased 6 percent and Europe and the Middle East gained 3 percent.

CEO Howard Schultz expressed special appreciation for the performance of U.S. stores.

"U.S. retails stores delivered comp growth of 7 percent, ahead of our own expectations, in a stunning achievement on a base of over 6,800 stores, against 9 percent comps in Q3 last year and in a state of continuing challenging U.S. consumer environments," Schultz said during the company earnings call.

Schultz also noted that the U.S. business has produced revenue growth of more than 22 percent over the last two years.

Schultz and other company leaders attributed the successful report to the introduction of Teavana and Fizzio products, as well as strong showings from food offerings.

"The results we announce today reflect the success of our strategies to innovate, identify new consumer needs and daypart opportunities and create innovative, highly differentiated relevant products to satisfy those needs all while maintaining a laser focus on our core coffee business," said Schultz.

The teas and sodas are "providing us with highly differentiated, hand-crafted beverages that attract customers during afternoon and evening dayparts and drive increased food attachment."

Food 'becoming a strength'

U.S. stores saw strong performance from food offerings, according to Chief Operating Officer Troy Alstead. Food sales drove two points of comp growth, and the breakfast sandwich platform surged 40 percent.

What used to be a weakness for the brand – food – is now quickly becoming a strength, said Schultz.

Starbucks introduced two new lunch sandwiches this year to positive customer response. The response is encouraging Starbucks to strengthen its lunch offerings.

Customers should expect to see big changes in the lunch program by the end of 2015, said Alstead.

Tea and coffee

Starbucks is also intent upon reinventing the tea category, just as it has reinvented the coffee category, according to Schultz. It's opened four Teavana Tea Bars, with more set to open this fall.

Plans also include expanding Fizzio from the 3,000 U.S. stores where it is now offered to introducing the soda product internationally.

Even while launching these new products, Schultz said Starbucks remains committed to leading in coffee. The brand plans to offer more proprietary micro-lot reserve coffees in coming months, expand its expresso and cold coffee offerings, and introduce more clover and pour-over brew method experience opportunities.

Digital and loyalty

Starbucks' loyalty and digital programs continue to be strong performers.More than 8 million customers are active members of the My Starbucks Rewards loyalty program. In China, more than 40 percent of total tender comes from My Starbucks Rewards cards.

Twelve million people are active users of Starbucks' mobile app, and mobile payments account for 15 percent of all payments in U.S. stores.

Starbucks is currently testing a mobile order and pay ahead option. A significant market test of mobile ordering is planned before the holidays, according to Cliff Burrows, group president for U.S., Americas, and Teavana.

Targets

Starbucks expects store comps to remain in the mid-single digits, and anticipates adding 1,600 new stores globally in FY 2015.

"Starbucks Q3 represents another quarter of outstanding operating and financial performance around the world, demonstrating once again the power and relevancy of the Starbucks brand and the success and scalability of our business model and go to market strategies," said Schultz.

Photo credit: Mr. TinDC via Flickr

About Brenda Rick Smith

Brenda has more than 20 years of experience as a marketing and public relations professional. She invested most of her career telling the story of entrepreneurial non-profit organizations, particularly through social media.

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