Starbucks becoming a 'food destination'

by Monica Watrous
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Starbucks sandwiches
Recent additions to Starbucks' lunch menu include a barbecue beef brisket sandwich on sourdough bread and a chicken artichoke sandwich on an ancient grain flatbread.

SEATTLE — Food sales are surging at Starbucks Corp. behind innovation at the breakfast, lunch and evening day parts. In the recent quarter, food revenue grew 19%, contributing significantly to comparable-store sales increases of 8% globally and 9% in the United States.

Kevin Johnson, Starbucks
Kevin Johnson, president and c.o.o. of Starbucks

“Our breakfast sandwich platform, which has now doubled in size from just three years ago, is increasingly resonating with our customers, and our lunch program is accelerating,” said Kevin Johnson, president and chief operating officer of Starbucks, during an Oct. 29 earnings call with financial analysts. “Our focus on creating new occasions enabled us to grow in every daypart. The data is clear — Starbucks is increasingly becoming a food destination across multiple day parts.”

In addition to expanding the lunch menu with new paninis, salads and sandwiches, Starbucks is launching more grab-and-go offerings, including pre-packaged bistro boxes, which include fruits, vegetables, crackers and cheese, eggs or hummus.

“We are increasing the introduction of what we are calling ‘wall of chill,’ which is our grab-and-go food presentation, which in high-volume stores, certainly in the urban locations, not only do people buy products for breakfast, but they also often buy something to take with them, like the bistro boxes,” said Cliff Burrows, group president for U.S., Americas and Teavana.

Recent additions to the lunch menu include a barbecue beef brisket sandwich on sourdough bread and a chicken artichoke sandwich on an ancient grain flatbread.

Starbucks also has extended its Evenings program, which includes wine, beer and sharable appetizers, to 100 stores with plans to add several hundred more in the coming year.

Executives expect momentum in food sales to continue in the year ahead, supported by the growth of Starbucks’ mobile ordering and payment program, which recently was rolled out to all of Starbucks’ 7,500 U.S. company-owned stores.

“Food is growing both in our store and through the drive-thru lanes, and with … Mobile Order & Pay, our ability to offer people at a store level the food range that that store has and over time a much more dynamic suggestive sell, plus responding to the in-stock position, all of those things bode really well,” Mr. Burrows said. “We have seen food grow through that 3% comp to 20% of the mix in U.S. stores and we see that increasing over time to the mid-20s, but obviously beverage will still drive it. And we will just keep investing, keep learning, and keep growing it.”

Starbucks Bistro Boxes
Starbucks is launching more grab-and-go offerings, including pre-packaged bistro boxes, which include fruits, vegetables, crackers and cheese, eggs or hummus.

Starbucks for the fiscal year ended Sept. 27 reported net earnings of $2,757.4 million, equal to $1.82 per share on the common stock, up 33% from $2,068.1 million, or $1.35 per share, for fiscal 2014. Net revenues for the year advanced 17% to $19,162.7 million from year-ago revenues of $16,447.8 million.

Net earnings attributable to Starbucks for the fourth quarter were $652.5 million, or 43c per share, up 11% from $587.9 million, or 39c per share, for the comparable quarter. Total revenues grew 18% to $4,914.8 million from prior-year revenues of $4,180.8 million.

For the year ahead, Starbucks expects to open 1,800 net new stores, including approximately 700 in the Americas region, and to generate full-year consolidated revenue growth of 10% or greater on a 52-week basis, with the 53rd week in the fourth quarter expected to add approximately 2%. Global comparable sales growth is expected to be approximately above mid-single digits.

“In 2016, Starbucks will deliver approximately $21 billion in revenue, operate close to 25,000 stores, and generate an operating margin approaching 20%,” said Scott Maw, executive vice-president and chief financial officer. “And despite the scale and scope of our company, we will also deliver once again double-digit revenue growth and non-GAAP e.p.s. growth of at least 15% when excluding the 6c impact from the 53rd week, consistent with our long-term targets.”
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