Starbucks Refreshers in Business Daily
If you can’t grow much more in three dimensions, try the fourth. That seems to be the lesson learned by retail cafe giant Starbucks.
In 2008, longtime Starbucks leader Howard Schultz returned as CEO and immediately began closing stores. Starbucks had expanded too fast, Schultz concluded. And with a cafe at every corner in many areas, three-dimensional growth through real estate expansion made little sense.
But time, reasoned Albert Einstein, is the fourth dimension.
And Starbucks coffee shops, though popular morning watering holes, would often empty out later in the day. If Starbucks could make better use of the clock by luring customers throughout the day, it would have a less capital-intense route to growth.
Starbucks has managed the feat, scoring double-digit global revenue gains that derive mostly from a pick-up in sales at existing outlets.
Not Just For Breakfast
By improving its lunchtime food offerings and adding new beverages promoted as midafternoon “refreshers,” Starbucks has tacked on time-based growth to more conventional space-based sales gains.
In July, the Seattle-based chain reported its 14th consecutive quarter of 5% or better year-over-year same-store sales growth. In its fiscal third quarter, ended in June, Starbucks grew global revenue by 13.3%. Same-store sales grew by 9% in both the Americas and China/Asia-Pacific.
Earnings of 55 cents per share represented Starbucks’ second-best quarterly performance in its 42-year history, Schultz told analysts in late July.
Starbucks also raised fourth-quarter earnings guidance to a range of 59 to 60 cents. In initial fiscal 2014 guidance, Starbucks predicted revenue growth of 10% to 13% and EPS of $2.55 to $2.65.
Much of Starbucks’ recent success derives from Schultz’s decision in his second stint as CEO to focus on shaping up older stores rather than building new ones.
“It became a focus on existing stores and operations instead of growing for the sake of growing,” said Jefferies & Co. analyst Andy Barish. “The stores were beaten up and dirty. And the service wasn’t very good.”
Remodeling and efforts to speed service both helped, he adds.
“We learned a great deal from some of the challenges we had several years ago,” Starbucks CFO Troy Alstead told IBD.
Alstead specifically cites improvements in food and beverage offerings, noting that “beverage innovation” has been vital. Fruity and mildly caffeinated “refreshers” have helped “entice our customers back for a second visit,” he said. “It’s about refreshment in the afternoon and on weekends.”
By Norm Alster, September 3, 2013 If you can’t grow much more in three dimensions, try the fourth. That seems to be the lesson learned by retail cafe giant Starbucks. In 2008, longtime Starbucks leader Howard Schultz returned as CEO and…