Which way to the nearest Starbucks? Look around you—there’s probably one to your right, on your left, and just behind you. Well—not always—but in many big city downtown areas, this is not an exaggeration. As the following Food Business News article reports, Starbucks is looking to make some changes to its store growth plans, especially in the U.S.
Scale has its positives and negatives. A key upside is purchasing power. The larger an enterprise the more leverage it may wield in negotiating cost. A downside is maintaining a consistent rate of growth compared to past performance is difficult. Management of the Starbucks Corp., Seattle, is currently addressing the latter challenge.
In its current form, Starbucks does business in 77 countries around the world, is involved in the operation of 28,000 stores, employs approximately 330,000, and serves nearly 100 million customers on a weekly basis. Books have been written about how the company has grown from a local northwestern enterprise into a global coffee powerhouse.
Now management is writing the company’s next chapter. It involves expanding in China and streamlining its corporate structure and operations in developed markets to become more agile.
“Over the past three years since I’ve joined the leadership team, we’ve delivered a top-line revenue CAGR of 10%, 17% on earnings per share, and we’ve returned $12 billion of capital to shareholders,” said Kevin R. Johnson, president and chief executive officer, during a June 19 presentation at the Oppenheimer Consumer Conference. “That said, our growth has been slowing.”
To reposition Starbucks for future growth Mr. Johnson outlined two key strategies the company is employing to continue growing. The first involves a retail alignment that seeks to ensure the company has the right number of stores and invested capital in various global markets. The second initiative involves business simplification and has included the divestment of slower-performing parts of the business like Tazo tea, closing Teavana retail stores and entering alliances with companies like Nestle S.A., Vevey, Switzerland.
No need for panic—coffee drinkers. They will still be thousands of Starbucks cafés throughout the U.S. and most of the world. But Starbucks is perhaps reaching the saturation point in the U.S. for adding new stores. In heavily populated areas, there are some Starbucks across the street from each other and they can cannibalize traffic from one another, putting a drag on sales. In the retail industry, same store, year-to-year sales is a key metric, and that has told a story of sluggish growth for the Seattle barista. Otherwise, Starbucks looks to robust growth in China as well as focusing on high-end Reserve and Roastery branded stores in the U.S where $10 can buy you a cup of coffee. So not to worry, Starbucks fans—and have another latte.
Overview by Raymond Pucci, Associate Director, Research Services at Mercato Advisory Group
