Here's Why the Best Is Yet to Come for Starbucks Corporation

The chain has multiple opportunities for continued growth.

Daniel B. Kline
Daniel B. Kline
Jun 1, 2017 at 11:36AM
Consumer Goods

Starbucks (NASDAQ:SBUX) has grown to roughly $20 billion in annual sales by creating a cafe concept that works around the world.

More than a coffee company, the chain has become a destination for beverages, snacks, and even meals. That has helped it grow to 26,161 stores in 75 countries globally at the close of Q2.

That's an impressive store total, but it's only the beginning for the fast-growing company. Starbucks not only plans to add thousands of its traditional stores around the world, it also plans to build on its premium Reserve brand, while also adding Roastery locations in some of the world's leading cities.

"Starbucks Roasteries under design or construction in the iconic, global cities of Shanghai, New York, Tokyo, Milan and Chicago will join our Seattle Roastery in delivering an immersive, ultra-premium, coffee-forward experience like none other anywhere in the world," said Executive Chairman Howard Schultz in the chain's Q2 earnings release. "Together our Roasteries, Reserve stores and Reserve bars will broaden-and deepen-the enduring emotional connection that exists between our customers and the Starbucks brand everywhere."

Whiskey barrel-aged coffee from Starbucks' Seattle Roastery

The Starbucks Roastery offers exclusive coffee experiences. Image source: Starbucks.

How is Starbucks growing?

While the Reserve and Roastery concepts may represent the chain's biggest new opportunities, Starbucks has not saturated the globe with its traditional stores. The chain plans to open 12,000 new stores globally and 3,400 net new stores in the U.S. by fiscal 2021. Many of those new stores will be in China where the company plans to open a store a day for roughly the next five years.

On top of its regular locations and the above-mentioned Roasteries, Starbucks plans to add 1,000 Reserve stores while adding Reserve bars to up to 20% of its existing stores. Each Roastery is a sort of coffee palace -- part theme park, part factory serving the region's Reserve locations, and part research and development hub.

The original Seattle Roastery has created a number of items which have been added to menus across the U.S. while also roasting small batches of coffee for sales at select stores. In addition the location saw its sales grow by 24% in 2016 over the previous year and customers at the Roastery spend an average of four times what a typical customer spends in a regular store.

Reserve stores, and Reserve bars, essentially take a piece of the Roastery experience and brings it to more locations. They give the chain a chance to cater to people looking for a higher-end coffee experience, whether it be lingering over a cup while chatting with a knowledgeable barista, or on the go.

More than just adding stores

In addition to adding stores Starbucks should be able to increase sales at existing locations through the use of technology. The company has struggled with its Mobile Order & Pay because in some ways it has been too successful.

That technology lets customers place orders and pay for them from their mobile devices. They can then pick those orders up at the front of the store, which has led to congestion in some cases.

Starbucks can solve those logistics problems and ultimately the technology takes people out of line. That allows stores to put more of the limited personnel it can fit behind the counter into production, allowing for more people to be served, and same-store sales to rise.

A path to growth

Starbucks has shown on a global basis that it has a model that works. The Reserve concept may not be entirely proven, but it's not a dramatic departure from a traditional store. Think of Reserve locations as an enhanced version of a regular store with the option of spending more on higher-end coffee and experiences.

There may be a saturation point for Starbucks but it's not yet in sight. For at least the next five years, and likely well beyond that, the company has significant room to grow, both in locations and in serving more people at its existing stores.