International coffee giant Starbucks (SBUX -0.60%) is one of my favorite stocks right now. The coronavirus pandemic devastated the company, which led to temporary closures at thousands of its locations worldwide. As a result, sales decreased by double digits in 2020.
Thankfully, the advent of several effective vaccines has global economies reopening cautiously. The trend is helping to bring sales up and customers back to Starbucks stores. Here are three reasons I am excited about Starbucks stock.
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1. International store growth is accelerating
In the company's fourth-quarter conference call on Oct. 28, CFO Rachel Ruggeri highlighted ambitious growth plans for Starbucks in 2022. At the strategy's heart is a planned 2,000-store expansion in 2022. That would represent store growth of 6% over 2021 levels.
What's more, an estimated 75% of those new stores will be located internationally. As a shareholder, I am excited about that decision because international stores generate higher profits than domestic ones. For the latest fiscal year ended Oct. 3, Starbucks' operating expenses as a percentage of revenue were 50% in its North American stores vs. just under 44% for its international ones.
2. The benefits of digital initiatives
One silver lining of the pandemic for Starbucks was that it successfully accelerated its digital footprint. Management changed its rewards program by expanding the ability to earn rewards regardless of how a customer pays. Starbucks now boasts 17.9 million active rewards members in China, up 33% from last year. In the U.S., Starbucks has 24.8 million active rewards customers, up 30% from the prior year.
Interestingly, over 50% of sales in the U.S. came from these high-value customers. Active rewards members are more likely to order through their mobile phones since they can avoid waiting in line to order, and they typically have payment information on file. This can improve the customer experience and reduce labor pressure at Starbucks stores as fewer staff are needed to take orders. It's a win-win scenario.
3. A $400 billion total addressable market for coffee
According to Starbucks management, the total addressable coffee market will reach $400 billion in the next three years, representing a compound annual growth rate of roughly 8.5%. That's a massive market, providing additional growth opportunities for Starbucks. In fiscal 2021, Starbucks generated sales of $29 billion. By just keeping pace with the market's growth rate, revenue could conceivably approach close to $40 billion.
So Starbucks still has potential on several fronts -- expanding its international locations, strengthening its digital connections with customers, and taking more share of a growing market.
Especially encouraging to me are the digital improvements. Right now, Starbucks is undoubtedly losing some sales because of long lines during peak hours of the day. A seamless digital offering allowing customers to place their orders by phone and pick them up in a Starbucks parking lot, drive-thru, or in the store, could go a long way toward reducing the average wait time.
Starbucks is not there yet. As a customer, I frequently skip buying a Starbucks when I see a long line of cars in the drive-thru. But as a shareholder, I am excited about the opportunities for Starbucks ahead.
