3 Reasons Starbucks Could Surge in 2014

Starbucks' (NASDAQ: SBUX  ) shares have pulled back off their highs of the year as analysts have begun to question whether the coffee giant can sustain its recent torrid pace of growth. While I certainly understand these fears -- CEO Howard Schultz has himself said it's highly unlikely Starbucks will be able to sustain its current 9% comparable-store sales growth in the U.S. -- it's important to understand that the comparable-store sales number is only one metric of business performance. Schultz and his team have a far broader perspective, and are building an enduring company that I believe will achieve long-term success and market-beating stock performance. With that in mind, here are three things that could potentially drive total sales -- and Starbucks' stock price -- higher in the year ahead.

Quality enhancements
By bringing in-house more of the products that it offers in its cafes, Starbucks is taking more control over the customer experience. Here I'm talking about items such as La Boulange bakery products, Evolution Fresh juices, and Teavana teas. Schultz and his team are obsessed with quality, and I fully expect them to ensure that these products not only meet but also exceed Starbucks' high standards. In fact, management has stated that they're seeing an enthusiastic customer response and substantial lift in sales compared with the baked goods that La Boulange is replacing, and that they've exceeded the aggressive growth plans they laid out for Evolution Fresh upon acquiring the business in November 2011. Best of all, with Teavana, management remains convinced that Starbucks can "do for tea what it's done for coffee" by growing and expanding the tea industry and the tea bar concept while introducing a wide array of handcrafted tea beverages and tea-inspired food. That's an exciting thought for Starbucks investors, as is the likelihood that a better selection of food and beverage items will continue to boost traffic, average ticket size, and same-store sales at Starbucks cafes.

The flywheel
Schultz has implemented a "strategic flywheel" strategy in which Starbucks leverages its global store base, its growing consumer packaged goods business, and its digital/mobile assets to reinforce each other and increase momentum across its product lines. For instance, by offering its La Boulange, Teavana, and Evolution Fresh products in its ubiquitous cafes, Starbucks creates consumer awareness for these brands and builds momentum for its consumer packaged goods business. And if shoppers are able to purchase Starbucks' products in the grocery store for use at home, that helps keep Starbucks and its growing collection of brands front and center in the minds of consumers, which in turn should benefit its cafes when those consumers are away from home. Digital and mobile applications help to inspire loyalty and make the purchasing experience faster and more convenient, further boosting store performance. In total, this flywheel effect creates a situation where the whole is greater than the sum of the parts, and it's this aspect of Starbucks business that I believe many investors are still underestimating.

Massive international opportunity
John Culver, the executive leading Starbucks' China and Asia-Pacific business, recently stated that "Starbucks is increasingly becoming a daily ritual for local Chinese." The numbers bear this out; the segment delivered strong comparable store sales growth of 8%, and stores opened in the past two years are averaging in excess of $700,000 in annualized sales. Starbucks opened 317 new stores in China in the past year and plans to open 750 new stores across the region in 2014.

Not to be overlooked is the accelerating growth that Starbucks is experiencing in other international markets, such as Japan, South Korea, Thailand, and Indonesia. Starbucks' management recently highlighted India as a country with massive potential and an extremely positive customer response to Starbucks' recent entry into the market.

Impressively, management is confident that it can not only continue to rapidly expand Starbucks' store count in these areas, but also drive strong same-store sales growth at the same time. If they're successful, that can be two powerful catalysts for strong stock price appreciation in the years ahead.

The Foolish bottom line
The sweet call of the green and white siren is growing even more tempting, as Starbucks improves its product offerings with La Boulange bakery products, Evolution Fresh juices, and Teavana teas. With a powerful flywheel effect building momentum across Starbucks' business segments, and massive opportunities in emerging markets, Starbucks can provide a jolt to Fools portfolios in 2014 -- and beyond.

Next steps
If you're looking for another stock that could surge in the year ahead, The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's completely free.


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