Starbucks Is Good for Your Spirit and Your Portfolio

Starbucks had a record-setting year in fiscal 2013. And according to the company's most recent annual shareholder meeting, it's only just getting started.

Felicia Gooden
Felicia Gooden
Apr 1, 2014 at 11:52AM
Consumer Goods

Starbucks (NASDAQ:SBUX) had a record-setting year in fiscal 2013. It reported revenue of $15 billion and earnings per share of $2.26, yielding increases of 43% and 426%, respectively, over the last five years. The company's success is based on its focus on humanism and social awareness balanced with profitability.

The lens of humanity
Starbucks CEO Howard Schultz attributed fiscal 2013's success to the company's focus on driving results through the "lens of humanity." During a speech, he stated, "In order to exceed the expectations of our customers, we must exceed the expectations of our people first." With an average sale of $5, it seems that the CEO may have uncovered something significant for the specialty-retail industry.

Last year Starbucks invested $250 million in health-care benefits for eligible full- and part-time employees. The company also shared $234 million in pre-tax stock gains and matched $50 million in 401(k) contributions, contributing to more than $1 billion in stock value shared with partners at every level.

Schultz also reiterated the company's promise to hire 10,000 veterans and military spouses by year-end 2018; he has pledged $30 million to the military to fund job training for war vets and medical research for post-traumatic stress disorder.

A love for loyalty
The company has set high long-terms goals, including 10% revenue growth, mid-single-digit comp-sales growth, 15%-20% EPS growth, and a 25% return on invested capital, not to mention the big goal of becoming a $100-billion company. Plans for execution include a focus on the loyalty program based on Starbucks cards and the new mobile app to make purchases easier.

Chief Digital Officer Adam Brotman emphasized record Starbucks card growth during the 2013 holiday season, with an estimated one in eight American adults receiving a Starbucks card. This translates into 1.5 million new customers registering their Starbucks cards. Starbucks now has more than 8 million My Starbucks Rewards members in North America alone. 

Dunkin' Brands (NASDAQ:DNKN) was inspired by this performance and recently launched its own rewards program for the average Joe, DD Perks. Dunkin' doesn't follow the tiered system that Starbucks uses to incentivize its customers. Dunkin' likes to keep things on an even keel and give general rewards to all of its customers. Foolish writer Daniel Kline gives a detailed comparison of both rewards programs and the importance of loyalty programs to company performance here.

Starbucks released a new mobile app for the iPhone that will extend the company's leadership in mobile payments. The app allows customers to tip Starbucks partners directly from the app in-store or after-purchase, and in the future customers will be able to place their orders ahead of time from the app too. Don't worry Android users, all of this awesomeness will be available on the Android platform in the future. The iPhone app currently accounts for 14% of all in-store transactions in the United States, and more than 25% of all transactions are made by Starbucks rewards loyalty members.

Starbucks has a real opportunity to set a new standard for ordering and paying for coffee; maybe Dunkin' will follow suit in the mobile area as well.

Taking on tea
One of the most exciting developments for Starbucks is its new partnership with Oprah in the development of Oprah Chai Tea. The media mogul made it a point to personally develop a blend of Chai Tea that will be sold at Starbucks and Teavana locations.

At the shareholder's meeting, Oprah said that she chose to work with Starbucks because the company "loves to nurture the human spirit." She feels that they both share a common mission; due to her strong belief in the importance of education, all proceeds from Oprah Chai Tea will go to charities that help youth education.

Starbucks plans on doing for tea what is has done for coffee. And considering what Oprah has done for plenty of authors from simple recommendations of great writing, it seems that Starbucks is well on its way to accomplishing its tea goal.

The takeaway
We live in a world where consumers, CEOs, and investors alike are becoming more conscious of social responsibility and the need to nurture the human spirit. Starbucks is setting the example of being a highly profitable international company that goes beyond the bottom line and embraces the need to take care of people all over the world. Company values are just as important as the ability to make a profit.