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Starbucks Doesn't Stand Still

By Nickey Friedman - Nov 11, 2014 at 6:09AM

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Starbucks is going even more upscale with the coming launch of a new super-premium coffee sub-brand called Starbucks Reserve. And that's not it's only idea for growth.

Starbucks (SBUX 3.87%) serves you coffee, tea, Wi-Fi, breakfast, lunch, soda, bigger cups, beans, even souvenirs -- what else could it possibly have left? Starbucks just celebrated its 19th quarter in a row of same-store sales gains of 5% or greater on the back of more products and services, but is the company tapped out of ideas, or is there still room for more? Let's take a look.

Source:  Starbucks.

Third-quarter results
Starbucks has big shoes to fill -- its own. Its most recent quarterly report showed another 10% increase in revenue to a fiscal Q4 record of $4.2 billion. Global same-store sales jumped 5%. Non-GAAP earnings per share popped 23% to $0.74. The company added another 503 stores in the single quarter, bringing its total to 21,366, while raising its quarterly dividend 23% to $0.32 per share.

CEO Howard Schultz stated in the press release: "We cannot be content with the status quo, as consumers continue to demand more and more in terms of convenience and excellence. You will see us continue to invest where it counts most, in mobile commerce, innovation, in the customer experience and the partners who drive it, and in the quality of our coffees."

It's hard to doubt Starbucks
In an interview with CNBC, Schultz pointed out that the last conference call was his 90th as a CEO. He's obviously done a fantastic job at the helm of the company. He was quick to also point out that the "disappointing" guidance of "only" mid-single-digit same-store sales growth was the same guidance the he has given for 10 straight years, implying it's just a conservative phrase he routinely throws out there.

Schultz added, "We are never satisfied. Our entire premise as a company is constantly trying to overachieve. ... We're going to take a page right out of Uber's book, and we're going to disrupt the coffee industry in the same context that we've done over and over again.

The plans
Starbucks plans to knock it out of the park this holiday season, starting off with -- as described in the conference call -- "an innovative new handcrafted beverage, chestnut praline latte, a beverage that resonated strongly with customers in test markets." Next up is an emphasis on gift cards. You might not t have guessed that one out of eight Americans received a Starbucks gift card last holiday season.

Then there's the launch of a new Starbucks super-premium coffee sub-brand called Starbucks Reserve. You may have heard about super premium whiskey and cigars. Now "super premium" will be part of the Starbucks coffee line. CNN Money reports that next month Starbucks will launch the flagship Reserve store, with 100 planned over the next five years. On the other end of luxury, Starbucks is planning to open smaller, express-style stores. Overall, Starbucks is planning 1,650 net new store openings in FY 2015, up from 1,599 in FY14.

Then there's the mobile pay that most other mom-and-pop coffee shops lack. "You're going to see in the years ahead ... a rapid acceleration in mobile device purchases and a continued significant migration away from bricks-and-mortar commerce," Schultz said during the conference call. Sixteen percent of all Starbucks transactions are through mobile pay now, with no other retail company coming even close. Mobile order and pay have the added advantage of increased loyalty, quicker-moving lines, and less costs per transaction.

Schultz made a notable statement in the Q&A portion of the conference call: "We see no indication whatsoever from any competitive threat in any region in the country. Specifically, even in those markets where companies were giving away coffee for weeks at a time, we saw no dilution whatsoever in our customer base."

One word: Wow. My simple conclusion is that it doesn't seem as if Starbucks is running out of steam any time soon. Just the opposite. With even free coffee from competitors not slowing down Starbucks, I see much upside in same-store sales still to come.

There is still room for further innovative ideas, especially in the afternoon and evening hours, and perhaps more importantly, sales could continue to grow among the ideas already rolled out. As an example, mobile pay may help sell more lunches, which will help sell more coffee, which could lead to more gift card purchases.

Starbucks may still have a lot of growth left in it.

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