Starbucks chairman, president and chief executive officer Howard Schultz and other company leaders will detail the company’s five-year strategic growth plan today at its biennial 2014 Investor Day, hosted in Seattle.
Today we are going to answer the following question: What does it take to build a great, enduring company?
“We have to maintain the entrepreneurial DNA of the company. We have to have the constant curiosity to see around corners and see what others don’t see, and we have to have the courage and conviction to make big bets.”
As a merchant, we have to consistently recognize that one of our obligations and responsibilities in this new world is that we have to drive incremental traffic. An example of that is Starbucks For Life.
Starbucks is performance driven organization through the lens of humanity. “That’s what I’ve imprinted on the entire organization over the last two years.” Performance is the price of admission (Starbucks stock price in November 2008 was $7.17/share, compared with $80/share in December 2014. Company market cap is $60 Billion) and we have proven we are best in class, but it is about more than numbers. It’s about the body of work.
The rules of engagement for a public company have changed. Companies now must do more for their people and the communities they serve.
What you’re going to witness today is a significant level of sophistication in terms of where we are going, a depth of management that is second to one, and an aspiration that is far, far greater than where we are today.
Starbucks Reserve® Roastery and Tasting Room (opening 12/5 at 8:00AM) is a metaphor for the entire company. The Roastery represents over 2 years of thoughtful, disciplined work about creating a retail experience that does not exist, not only in the world of coffee, but in the world of retail.”
“We are building a new brand within Starbucks.” The new brand is Starbucks Reserve – an opportunity to get access to rare micro-lot coffee that we’re going to roast to perfection in this new facility. In addition that we’re going to open Starbucks Reserve stores, about the same size as an existing Starbucks store. The reserve stores will bring to life a super-premium experience for our customers.
“We have an opportunity to make history. I’ve never been more optimistic, more enthused about the things that we are going to do.”
Over the next 5 years, Starbucks will grow to nearly $30 billion in annual revenue with more than 30,000 stores globally.
Starbucks partners (employees), coffee and corporate reputation (trust in the company) drive long-term brand loyalty.
“We measure what drives perception of our brand and the single most important thing, is the connection made between partners and customers.” Of the people who consider purchasing at Starbucks, 47 percent do so because of the partner and customer connection.
Starbucks seven strategies for growth:
1. Be the Employer of Choice – Invest in partners capable of delivering a superior customer experience.
2. Lead in Coffee – Continue to build our leadership position around coffee agronomy, sourcing, roasting, brewing and serving handcrafted beverages.
3. Grow the Store Portfolio – Increase the scale of the Starbucks store footprint with disciplined expansion. (Different formats, licensing opportunities and international expansion)
4. Create New Occasions to Visit Stores – Grow store usage across day parts with new product offers. In addition to breakfast, create new food offerings for lunch, afternoon refreshment and snacks, and evenings.
5. CPG Brand Growth – Focus on the Starbucks brand to unlock profitable growth rarely seen in consumer packaged goods internationally.
6. Build Teavana – Create a second major business in tea. The global tea market is about a $109 billion dollar industry. (Emphasis on Tea Bars, relevant tea products and formats, Teavana in Starbucks, and Teavana in the grocery aisle)
7. Extend Digital Engagement – Drive convenience and brand engagement through mobile commerce platforms. This includes expanding the number of customers participating in My Starbucks Rewards, and launching Mobile Order & Pay and Delivery. (1 in 8 Americans received a Starbucks gift card for Christmas)
“These strategies will deliver growth and the enduring company Howard spoke about.”
“Mobile order and pay, launched in Portland, is the latest edition to what is already the most powerful mobile ecosystem of any retailer in the world.”
By the numbers:
Starbucks has 47 million transactions each week in its 12,000 US stores
8 million active My Starbucks Rewards members
12 million customers actively use Starbucks mobile apps
“Delivery is one of our most requested ideas. We are exploring several different options to make this a reality. Delivery will launch in select markets in late 2015.”
Starbucks is the gold standard because of its retail site selection, global reach and local relevance with 18 design studios around the world.
“We are the leading retail, real estate, design and construction management company in the world.”
Starbucks store count over the years:
1971 = 1; 1987 = 17; 1990 = 84; 1992 = 165; 1995 = 677; 1999 = 2,498; 2003 = 7,225; 2007 = 15,011; 2011 = 17,003; Today = nearly 21,700
Starbucks honors its heritage, with the original store in Pike Place Market, it evolves with locally-relevant design, and embraces its future – the Starbucks Reserve Roastery and Tasting Room (return to the Starbucks Newsroom for Roastery photos and stories at 5:00PM Pacific today).
Starbucks has design studios in Seattle, San Francisco, Los Angeles, Dallas, Chicago, New York, Coral Gables, Vancouver, Toronto, Montreal, Mexico City, Sao Paulo, London, Amsterdam, Moscow, Shanghai, Tokyo and Hong Kong.
“No two Starbucks store being built today are alike because of our in-house design studios focusing on locally-relevant design.”
The company continues to develop new store formats.
Starbucks original delivery truck in 1971…
To today’s mobile trucks
“Starbucks partners are the driving force behind our culture.”
Starbucks has a deep history of elevated partner investments and innovation. This includes: healthcare for partners; Bean Stock; beverage, food and merchandise benefits; Starbucks College Achievement Plan.
Starbucks currently has 21,000 stores and expects to have 30,000 stores by the end of 2019. The company has “significant store growth opportunity” around the world.
World-class operations are driving global growth including: best in class store operations; expanding channels of distribution; supply chain excellence and efficiency; industry leader in digital with ongoing investments in tech capabilities; deep global leadership bench.
Business unit leaders will provide details from Starbucks regions – the Americas, EMEA, CAP and Channel Development
Americas region (Canada, US, South America) contributes 73 percent to global revenue with 54 million transactions every week, through more than 14,000 stores in 16 countries. US stores deliver 65 percent of global revenue.
More opportunities lie ahead with food. Starbucks has completed the rollout of La Boulange to more than 11,000 stores ahead of schedule. The biggest opportunity with food is through breakfast sandwiches.
“Americas is strongly positioned for continued growth. Over the next five years we plan to open over 3,500 net new stores, increase revenue by $7 Billion and almost double our operating income.”
Kris Engskov – president, EMEA
EMEA (Europe, Middle East, Africa) is positioned for future, profitable growth, currently with 6.4 million+ transactions every week through 2,100 stores in 37 countries. The region has 23,000 Starbucks partners.
Starbucks expects to double EMEA store count over the next 5 years. Key drivers will be: improving store economics; new formats and channels; new strategic partnerships.
“Drive-Thru and roadside stores remain our biggest growth opportunity.”
Photo: New roadside concept store in Harrjjan, Amsterdam
“Licensing in grocery stores is emerging as a major, new growth opportunity.”
“50 percent of the world’s coffee is consumed in the EMEA region.”
“We are at a transformative moment in our growth within the China and Asia-Pacific region. Two years ago at this conference, I said that the CAP region represents the single largest and fastest retail growth opportunity for the company. As true as that statement was two years ago, that statement is even more true today as we look at the opportunity in front of us.”
Photo: Opening of Starbucks 83rd city in China – Daqing
If a picture is worth 1,000 words, this shows us our brand across the region has never been stronger, the customer experience we deliver has never been more relevant, and our partners who wear the green apron have never been more passionate.
In CAP region – there are 80,000 partners in 4,600 stores in 15 countries with 12 million transactions ever week.
“Going forward, our ambition is clear. As we look ahead five years, Starbucks will double the number of stores we have across the region and approach 10,000 locations.”
Closer look at key markets within CAP
Japan: In September Starbucks announced it will take full ownership of the company’s second largest market in the world. Starbucks currently serves 4 million customers every week and has 1.3 million My Starbucks Rewards members.
India: Starbucks fastest growing new market (just celebrated 2nd anniversary) with 61 stores across six cities.
Korea: Starbucks opened in Korea 15 years ago and the country is the third largest market in the region with 700 stores. The company opened its first drive thru two years ago and over the next year half of the new stores we open in Korea will be drive-thrus.
Thailand: Last month Starbucks opened its 200 store. Thailand is home to Starbucks first community store outside the U.S.
“Over the next five years we are committed to doubling the number of stores across the region.”
Belinda Wong – president Starbucks China
China is the fastest growing market for Starbucks.
The company has been in China for 16 years with 25,000 partners working in 1,400 stores in 84 cities, with 3 million transactions every week.
“We opened on average 1 store per day last year. This year we have a high ambition. We will open one store every 18 hours, and I’m proud to announce we will open our 1,500th store by the end of this month.”
Starbucks China has 6,000 certified coffee masters. “Our passionate partners are why we are successful in China.”
“We are humbled by how Chinese consumers have accepted and embraced the Starbucks experience. We are proud to lead the specialty coffee experience in China.”
Starbucks will continue to “grow with great discipline.”
The investment made through a Starbucks design studio in China is giving the company “an edge in driving innovations.”
Company will more than double its store count to have 3,400 stores in mainland China by 2019.
Think of Channel Development as “connecting people around the world to Starbucks wherever they live, work and play.”
Our reach today is significant, with products are distributed in 39 countries including the U.S. There are more than 1 million places outside a Starbucks retail store where a customer can find Starbucks products.
1,300 colleges and universities
120,000 grocery and convenience stores
More than 12 million travelers each week encounter Starbucks in their hotel rooms, on cruise ships or on Delta and Alaska flights around the world
“We hold the leadership position in the premium and single cup categories. Roughly half of sales in these two categories come from just three brands. As a testament to our brand relevance, Starbucks was the only established brand to gain share last year in Premium Single Cup.”
“The fastest growing segment in the coffee category is K-Cups and Starbucks once again grew faster than the category in 2014 at more than 34 percent. Since we launched K-Cup packs in 2011, we have shipped 2.3 billion K-Cups and are projected to ship over 1 Billion in 2015, led by our newest innovation – iced coffee K-cups. “
Highlights of Starbucks strong financial performance over the past four years: Starbucks doubled cash returns and doubled dividend payout through “strong financial discipline.”
We will maintain our core focus: best in class revenue growth; capital investment efficiency; total return to shareholders.
“We’ve never missed our guidance due to coffee prices.”
Starbucks is “uniquely positioned to deliver significant shareholder value.”
11:27 presentations conclude
11:45 Q&A concludes
Forward Looking Statements
Certain statements contained herein are “forward-looking statements” within the meaning of the applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as “anticipate,” “expect,” “believe,” “could,” “estimate,” “feel,” “forecast,” “intend,” “may,” “plan,” “ potential,” “project,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based upon information available to Starbucks as of the date hereof, and Starbucks actual results or performance could different materially from those stated or implied due to risks and uncertainties associated with its business. These risks and uncertainties include, but are not limited to, costs associated with, and the successful execution of, the company’s initiatives and plans, the acceptance of the company’s products by our customers, fluctuations in U.S. and international economies and currencies, our ability to preserve, grow and leverage our brands, potential negative effects of material breaches of our information technology systems if any were to occur, the impact of competition, coffee, dairy and other raw material prices and availability, the effect of legal proceedings, and other risks detailed in the company filings with the Securities and Exchange Commission, including the “Risk Factors” section of the Starbucks Annual Report on Form 10-K for the fiscal year ended September 28, 2014. The company assumes no obligation to update any of these forward-looking statements.