Starbucks Brews Perfect Recipe on Growth

Starbucks Corp. (SBUX) announced that the company would include almond milk to its line of nondairy coffee starting September. The move addresses the customers’ complaint about the coffee chain’s lack of almond milk in the offering. According to the company, the Almond milk has “light almond notes without any added flavoring” and it will be available in more than 4,600 stores as an alternative non-dairy production, along with soy milk and coconut milk.

Based on the channel checks from social media, consumers were delighted over the news. It seems that the company is in touch with their customer base.

Being able to satisfy their customers strengthens their brand equity, as consumers are willing to spend additional money for healthy alternatives. Moreover, it its noted that global sales of non-dairy alternatives more than doubled between 2009 and 2015 to US$21 billion based on EuroMonitor estimates.

Product Improvement Complements Store Expansion

During the first quarter of 2016, Howard Schultz, CEO and Chairman of Starbucks unveiled their growth footprint.
Starbucks Brews Perfect Recipe on Growth
Image by denniskendall / Pixabay
It plans to increase its presence in the Americas, EMEA and China/Asia Pacific through retail investments, digital presence and channel development. It is notable to mention that they plan to focus on increasing their Asian market penetration. In fact, they plan to open 500 stores in China this year to reach 3,400 coffee shops in the country by 2019. The franchise is strong in the country as it is seen that sporting a Starbucks cup is sometimes considered a status symbol leading to a premium price on its coffee. Additionally, it is seen to move into other Asian regions, which have also delivered modest returns for them.

The recent financial results have shown that it opened 1,876 net new stores for the last 12 months. It targets around 1,900 net new openings in the fiscal year, mainly coming from the China / Asia Pacific (900 stores), Americas (750 stores) and EMEA (250 stores). The continued investment in both production additions and store expansion will translate to rapid expansion in operating margins and profitability.

Management has affirmed their fiscal year 2016 targets. It expects revenue growth of around 10%, underpinned by global comparable store growth. Further, operating margins are also expected to increase slightly with modest margin expansion from the China / Asia Pacific and Americas businesses. With these continued expansion plans, it seems that the company will be able to continue its topline growth which has increased from $11.70 billion in 2011 to $19.16 billion in 2015, or a growth of around 16%.

It appears that Starbucks could be making good bets for the future, given the following reasons:

• Starbucks’ store expansion plans complemented by product enhancements are good ingredients for a solid growth footprint.

• Operating margins and profitability are expected to improve on these expansion plans.

• Starbucks seems like a good long-term bet in an uncertain global economic environment.

Its global brand franchise will help its company enhance its profitability and shareholder value. In these uncertain times, investors could take a deeper look on SBUX’s long-term attractiveness and include the stock in their conservative portfolio.

By Chris MacDonald

Copyrighted 2016. Content published with author's permission.

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