Starbucks Corp. is continuing to pursue expansion plans both within and outside its units, despite outside economic pressures threatening the company’s bottom line.
The headwinds of higher commodity costs, primarily for coffee, will take a projected $230 million toll on Starbucks in 2012. But momentum from its expanded grocery store products and international growth will continue to drive results, company officials said following a report on first-quarter earnings, which showed a 10-percent increase in profit and record revenue.
Starbucks chairman and chief executive Howard Schultz said the coffeehouse chain is serving more customers than ever before at its 17,244 worldwide locations, despite a “seismic change” in consumer behavior from the “cataclysmic” recession.
Starbucks, he said, is well positioned to take advantage of those changes, which include continued economic pressures on consumers, and increased use of digital and social media and mobile payment.
For example, one in four customers pay with Starbucks loyalty cards, which offer discounts that appeal to budget-minded guests, he said.
Starbucks also has 40 million fans on Facebook and is a leader in Twitter and Foursquare, allowing the company to lower traditional advertising costs and “build a more enduring emotional relationship with our customers,” Schultz said.
Given the macro issues many companies face, “We have been able to turn into a competitive advantage with regard to value, social digital media and mobile payment,” he said.
Starbucks’ U.S. company-owned units posted a same-store sales increase of 9 percent in the first quarter, including a 7-percent increase in traffic. It was the strongest holiday season in the company’s 40-year history.
Company officials credited improved unit-level productivity, as well as daypart-stretching success with the chain’s Bistro Box meals, Frappuccino Happy Hour deals and Treat Receipts, offering discounts on a second drink later in the day.
Starbucks outlined other projections for 2012:
• The Americas: Using a new format to report results, the Americas region now includes 12,494 U.S. locations — which account for about 90 percent of results — along with Canada and Latin America.
Clifford Burrows, president of The Americas division, said holiday offerings, such as peppermint mocha, gingerbread latte and caramel brulée latte drinks, boosted sales by about 20 percent over the previous year.
Average daily transactions per location surpassed a previous record set in 2006, and 413,000 people joined the chain’s My Starbucks Rewards program in December alone, bringing total membership to 3.7 million.
Burrows said the company would continue to focus on building business throughout the day, as well as increasing capacity during the morning peak.
Lunch, in particular, offers an opportunity, and more is planned for the Bistro Box line, as well as the afternoon “cake pop” hour.
Earlier this month, Starbucks said it is expanding this year its test of a new format — including beer, wine and compatible small plate offerings — to locations in Chicago, Atlanta and Southern California, in addition to the six locations that currently offer it in the Pacific Northwest.
Starbucks this year plans to open 400 locations in the Americas in 2012, mostly in the United States, about half of which will be licensed.
The company has reached 500 units in Latin America, as well as 300 locations in Mexico. New units in Brazil are showing strong results, the company said, and Starbucks in May will open its first locations in Costa Rica.
• New products: Last year, Starbucks acquired the Evolution Fresh juice brand, which will join the company’s growing consumer products group, or CPG, lineup in grocery stores, and be sold in Starbucks locations.
Hoping to grab a piece of the $50 billion health-and-wellness category, Schultz said the company will unveil the middle of this year a new juice bar concept “unlike anything in the market today.”
Starbucks in January launched a new Blonde Roast coffee, a milder version now available in its coffeehouses, as well as in grocery stores as packaged coffee, VIA Ready Brew and K Cups.
The Blonde Roast offers an opportunity for incremental business, Schultz said, with an estimated 40 percent of American coffee drinkers preferring a lighter style.
Schultz predicts both VIA and K Cups will each develop into billion-dollar businesses, as Starbucks roll out the products globally.
• Europe, Middle East and Africa: This region is underperforming, according to Starbucks, showing the weakest same-store sales of any region, with an increase of only 2 percent.
Troy Alstead, Starbucks’ chief financial officer, said the company is planning a turnaround for the region, and that the second and third quarters will include “foundational investments” that may weigh down margins but improve results over time, he said.
• China and Asia Pacific: Showing the most success, with same-store sales up 20 percent and rapid growth continuing, the CAP region gained traction with Starbucks’ loyalty program, with nearly 250,000 members in China alone.