Restaurants often see explosive growth in sales as they expand locations on a regional or national level. Companies try to maximize revenue by opening locations in new areas and continuing to expand their brand. Sometimes when they have reached a high number of locations, companies come up with new concepts to strengthen their brand. That is exactly what the following two companies are doing.
Starbucks hopes to dominate the tea market
Starbucks (NASDAQ:SBUX), the coffee giant based out of Seattle, has seen its store count grow to more than 18,000 locations. While the company is still expanding both domestically and internationally, a new concept for growth revolves around tea shops.
Back in January, I gave eight reasons to purchase shares of Starbucks. Since that time, shares are up more than 40%, and one of the main reasons I provided now offers more upside. Starbucks acquired tea company Teavana for $600 million. At the time of the acquisition, there were around 300 Teavana stores open in malls throughout the United States. New plans call for Starbucks to open 1,000 more locations in the next five years.
The new locations will be different from the existing mall stores and many will be opened via the Teavana Fine Teas + Tea Bar concept. The strategic plan to open many Teavana stores can have a huge impact on Starbuck's shares. Unlike the coffee locations where guests are often on their way to work, Teavana will try to operate as more of a 'come order a tea and sit down' approach. This could lead to the introduction of La Boulange food, also acquired by Starbucks recently, into Teavana locations.
Aside from the possibility of food at Teavana locations is the fact that tea generally has higher margins than coffee and is also more widely consumed around the world. Parts of Asia and Western Europe drink a large amount of tea and could power Starbucks' expansion of the brand if international locations are well received. Starbucks will also try to strengthen the Teavana brand by selling teas at Starbucks and possibly retail locations like Whole Foods.
Profit alongside Starbucks
Shares of Starbucks are trading close to 52-week highs on the strength of domestic and international market sales. While expansion in the United States has cooled off, international markets continue to see the introduction of more and more Starbucks locations. With the possibility of Teavana breaking through, the time to invest in Starbucks is now.
To me, the Teavana brand is not priced in, and although Starbucks paid $600 million for the company, a failure to reach 1,000 stores would not hurt the business, as its true strength is and will always be coffee. Teavana is pure icing on the cake, with its ability to raise margins and increase consumer-packaged goods sales.
Jamba wants to expand
Jamba (NASDAQ:JMBA) is a much smaller drink company based out of California. The smoothie company has locations in 30 states and continues to expand through franchising. However, a new concept called Jamba Go might boost the number of locations and help Jamba shares rise from their current lows.
Jamba Go is an express smoothie concept that the company is using to get into smaller locations like shopping malls, school cafeterias, and retailers. In fact, Jamba believes there is "significant growth potential in K-12 schools and retail venues."
Jamba Go locations are cost effective for Jamba, as they require little capital from the company, as new locations are financed by retailers or schools. The stores provide higher profit margins and the average unit nets $2,000 per year in profit for Jamba. While this number doesn't seem like a lot, it marks more than $4 million in profit in the next couple of years as locations reach the 2,000 mark.
As of July, there were 829 Jamba locations. As you can see, the number of Jamba Go locations could greatly expand Jamba's national and international reach. The creation of Jamba Go locations in states without a current Jamba store could lead to further franchise deals based on the popularity of the brand.
In the last 52 weeks, shares of Jamba have traded between $9.05 and $17.50. Investors continue to send shares down as the company has lowered same-store sales guidance. With the new Jamba Go concept, Jamba may be able to boost profits and earnings per share, even with lower sales at existing locations.
Jamba looks cheap
While this isn't ideal, it provides a safety net for investors as stores recover to get back into positive territory. Jamba shares have fallen to less than $11 and offer good value should the company rebound. That said, analysts are projecting no revenue growth for the current fiscal year. In fiscal 2014, analysts see the company's revenue rising almost 5%. With the inclusion of Jamba Go, that number could come in higher.
Earnings per share are expected to jump to $0.11 and $0.38 over the next two years, respectively. That comes after a loss of $0.38 per share last fiscal year. The upside to Jamba is clearly there, and Jamba Go is set to lead the way.
Chris Katje has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.