Starbucks reveals five-year strategic plan, aims to add 12,000 new stores globally: Starbucks has revealed its five-year strategic plan for growth, which includes adding 12,000 new stores globally that will take the company to a 37,000-strong estate by 2021. The company said it planned to grow revenue by 10%, earnings per share by 15% to 20%, and drive mid-single digit comparable growth each year, while continuing to “elevate the Starbucks experience around the world”. Speaking at the company’s biennial Investor Conference, president and chief operating officer Kevin Johnson said: “We are today executing against an ambitious, carefully-curated, multi-year strategy to further elevate the entire Starbucks brand and customer experience around the world, and further extending Starbucks leadership around all things coffee, retail and mobile. The power of our brand, the strength and momentum in our business, and the world-class management talent we have assembled give me great confidence in our ability to capture the enormous global growth opportunities ahead.”

The company outlined six points to its plan: 

 

Transforming the premium coffee experience: The company stated: “Since opening two years ago, the Starbucks Reserve Roastery in Seattle has become recognised as the most dynamic and immersive coffee forward retail experience in the world, delivering an unprecedented level of premiumisation to the coffee category and fueling the next wave of transformation that is elevating the Starbucks experience globally. Building on this, the company plans to accelerate the presentation of the Roastery experience around the world, opening its next Roastery in Shanghai in 2017, Tokyo and New York City in 2018, and a fifth location in Europe to be announced early next year. Each Roastery will serve as the foundation for Starbucks Reserve stores – a new retail format that will integrate the theatre and romance of the Roastery with the unique culinary experience of the company’s new Italian food partner, Princi. These Starbucks Reserve stores, under the leadership of the company’s new Siren Retail organisation, represent a significant growth opportunity for the company in the US and around the world. The first of these new stores will open in Seattle and Chicago in the second half of FY17, with plans to open 1,000 or more globally over time. In addition, the company plans to open standalone Princi stores in Seattle, New York and Chicago in late 2017 and in early 2018. The company is also extending elements of the high-end Roastery experience to its core Starbucks stores, adding Starbucks Reserve experience bars in up to 20%of its total portfolio (including new and renovated locations) by 2021.”

 

Premiumisation strategy to drive innovative new customer experiences: The company stated: “Starbucks Reserve Roasteries will serve as an innovation pipeline that will elevate the brand and contribute a ‘halo’ to the entire Starbucks experience. This includes new product breakthroughs that will contribute to the growth of the company’s ecosystem, segmented strategically across all Starbucks stores. Earlier this year, Starbucks introduced its first limited-time beverage offering inspired by the Roastery, the smoked butterscotch latte. This was followed by nitro cold brew, which is now available in more than 500 US company-owned locations and select stores in Canada and China, as Starbucks pursues a $600m global cold brew opportunity. Both products continue to reinforce the company’s focus on Roastery-inspired craft at scale, as well as ongoing investment in the cold coffee category. In core stores, Starbucks innovative, coffee-forward beverages such as flat white, cold brew, latte macchiato and iced coconut milk mocha macchiato all support the company’s premiumisation strategy. In January, customers nationwide will be introduced to another Roastery offering with the introduction of the cascara latte. Made with the fruit of the coffee cherry, cascara lends subtle notes of dark brown sugar and maple to classic Starbucks espresso. With its strong retail foundation and operational excellence, Starbucks is bringing Roastery-inspired innovations like this to market more rapidly than ever before, creating further distinction from competitors. Starbucks is simultaneously innovating and expanding its food menu with products customers have been looking for, starting with the launch of sous vide egg bites in January 2017 – a wheat-free, low calorie, high protein, convenient breakfast; the spring launch of a certified gluten-free breakfast sandwich; the expansion of the successful bistro box platform; as well as a regional roll-out of organic soups. Relevant innovation has become fundamental to unlocking the lunch daypart and building on existing breakfast daypart momentum, giving the company the ability to realise additional profitability and incremental sales. Starbucks breakfast sandwich sales have more than doubled over the past four years and innovation will continue to drive meaningful growth, creating and meeting customer demand for innovation across all dayparts. Building on this strong momentum, Starbucks once again aims to double food growth over the next five years.”

 

Extending the digital flywheel: The company stated: “Starbucks offers the largest and most robust mobile ecosystem of any retailer in the world, with more than 12 million Starbucks Rewards members (up 18% year-on-year), eight million mobile paying customers with one out of three now using Mobile Order & Pay, and more than $6bn loaded onto prepaid Starbucks cards in North America during the past year alone. Today, Starbucks will unveil an innovative conversational ordering system, My Starbucks Barista, powered by groundbreaking artificial intelligence for the Starbucks mobile app. Starbucks mobile app customers will be able to place their orders via voice command or messaging interface, delivering unparalleled speed and convenience, enhancing customer loyalty and engagement and further extending the accessibility of the Starbucks app. The My Starbucks barista feature will roll out first on iOS in limited beta in early 2017 and be made available to more iOS and Android users in subsequent releases. Starbucks digital flywheel has also continued to gain momentum with the launch of true one-to-one personalisation. While still early in the evolution of this service, Starbucks hyper-personalised e-mail reward offerings – with more than 400,000 variations – have more than doubled customer response rates over previous segmented email campaigns, translating into increased customer engagement and, importantly, accelerated spend. Starbucks has delivered personalised offers to customers directly on the front screen of the mobile app. By early 2017, the company expects to complete the roll-out of suggested selling and recommendations (suggesting items for pairing or additions to a customer’s order) during Mobile Order & Pay checkout, which the company believes will further fuel engagement and growth. With Starbucks Rewards, the company’s new spend-based loyalty programme, customers are finding increased value when being rewarded for bigger purchases. This enables the company to boost ticket, create greater marketing flexibility and pursue ‘Stars Everywhere’ partnerships to create further Star earning opportunities, while reducing ‘order splitting’. With a 94% programme retention rate, and new international markets on the horizon, the programme is stronger than ever before.”

 

Unlocking high-value opportunities in China: The company stated: “Customers in China have continued to embrace the Starbucks brand, with some of the company’s most innovative, efficient and profitable stores producing record revenue and strong like-for-like sales growth in FY16. Starbucks newest class of stores in China are delivering the highest average unit volumes, return on investment and profitability of any store class in the company’s 17-year history in the market. Starbucks now operates approximately 2,500 stores in 118 cities in China and employs more than 30,000 partners (employees), opening over a store a day – a growth rate that will continue to accelerate well into the future. Starbucks remains on track to open more than 5,000 stores in China by 2021 and expects the market will eclipse that in the US over time. While Starbucks business in China is in its very early stages of development, the company will announce today a series of strategic moves it is making in the digital and mobile space to further extend customer engagement and loyalty.”

 

Expanding global leadership position in at-home coffee and ready-to-drink: The company stated: “Over the next five years, Starbucks expects its channel development segment, which includes its consumer packaged goods portfolio, branded solutions (licensed stores and foodservice), and ready-to-drink (RTD) segments, will generate an incremental $1bn in revenue, grow operating income by 75%, and double its RTD business outside of the US. The company is the industry leader in premium single serve, premium packaged roast and ground coffee, and RTD products, and is well positioned to grow its share of these markets both in the US. and globally. The company’s more than 20-year partnership with PepsiCo to create the North America Coffee Partnership (NACP) is a more than $2bn business and has approximately 97% share of the RTD coffee category. The NACP continues to bring to the market highly relevant, new and innovative coffee and energy products to meet the needs of customers looking for premium, on-the-go coffee offerings. In spring 2017, the company will launch new bottled Starbucks cold brew cocoa and honey with cream in select markets across the US. In Latin America, Starbucks has expanded its partnership with PepsiCo to begin distribution of the iconic bottled frappuccino chilled coffee beverage across ten markets. In China, where the RTD coffee and energy category represents a $6bn opportunity that is projected to grow by 20% over the next three years, Starbucks and its partner, Tingyi Holding, have rapidly achieved distribution in more than 37 major Chinese cities and more than 7,100 points of distribution, experiencing strong consumer demand. Starbucks is extending this same disciplined growth and innovation to the RTD tea category, which is a fast growing $4bn category, starting with the upcoming launch of bottled Teavana craft iced teas in partnership with Anheuser-Busch. The first line of teas will begin shipping to select north east US retailers in February and customers will soon enjoy four new, vibrant varieties brewed from the finest Teavana teas and botanicals with no artificial flavours. The new RTD teas include pineapple berry blue herbal tea, peach green Tea, mango black tea and passion tango herbal tea. Later in 2017, select flavours will roll-out to Starbucks stores with plans for national channel availability by 2018.”

 

Creating long-term opportunities for partners: The company stated: “From being among the first to offer comprehensive health benefits and equity in the form of stock for partners who work 20 hours or more a week, to providing them with the opportunity for full tuition reimbursement for a bachelor’s degree from Arizona State University through the innovative Starbucks College Achievement Plan, Starbucks has continued to invest in and innovate around the partner experience while balancing the needs of its customers, shareholders and the marketplace. Starbucks has now matched $78m in 401,000 savings in the US with a total fund balance of $1.3bn as of FY16. Its global bean stock programme, which grants partners equity in the form of company stock, generated $221.6m in pre-taxed gains in FY16. The company also recently announced it would add an enhancement to the programme in 2017, doubling the annual bean stock award for US hourly store partners with at least two years of continuous service with the company. Further, with the recent move to a new healthcare platform, US partners are now saving an average of 15% per pay check on healthcare premiums compared with last year. Starbucks is finding that these incremental investments in both wages and benefits have helped support and elevate its partners, attract and retain the best talent, provide measured improvement in service to customers and deliver outsized returns to shareholders. In fact, since announcing the Starbucks College Achievement Plan two years ago, the company has enrolled more than 6,300 US partners in the programme and is on track to celebrate 1,000 graduates in 2017, with a commitment to graduating 25,000 partners from the program by 2025. Early results from the programme are showing that participants have twice the retention rate and are more than four times more likely to achieve a promotion in responsibility. In the spirit of the company’s mission and values, Starbucks CUP (Caring Unites Partners) Fund, an emergency financial assistance programme for partners impacted by natural disasters and family emergencies, generated more than $2.1m in contributions from partners in FY16 through a combination of ‘round up’ in stores and payroll contributions. Since it launched in 1998, partners have raised more than $18m toward the CUP Fund. The company also matched $784,000 in individual partner charitable donations and volunteer hours, and donated more than 300,000 meals since launching its FoodShare initiative in select US markets in March 2016. Looking ahead, Starbucks plans to roll out FoodShare to all 8,000-plus US company-operated stores over the next three years.”