While most restaurant companies blamed the shortened holiday season, consumer trepidation or winter weather for slower sales in December, Starbucks warned that the end of 2013 marked a fundamental move away from traditional brick-and-mortar retailers to online shopping.
Though Starbucks reported yet another record quarter with profits rising 25 percent and global same-store sales increasing by 5 percent on a 4-percent jump in traffic, December trends indicated a softening during what is typically one of Starbucks’ strongest seasons. The 5-percent increase in same-store sales was the lowest since the first quarter of 2010, when same-store sales rose 4 percent.
“Holiday 2013 was the first in which many traditional brick-and-mortar retailers experienced in-store foot traffic give way to online shopping in a major way,” said Howard Schultz, Starbucks’ chair, president and chief executive, in a call with analysts following the release of first-quarter results Thursday.
“There were just fewer people out there shopping, and so fewer people for us to capture and provide some great experiences in our stores,” he said.
Schultz said he sees traditional brick-and-mortar retailing at an inflection point.
“No longer are many retailers only required to compete with stores on the other side of the street,” he said. “They are now required to compete with stores on the other side of the country.”
ShopperTrak, a retail analytics firm, said national retail sales rose 2.7 percent to $265.9 billion in November and December 2013, despite a 14.6-percent decline in foot traffic in stores. Bad weather in many parts of the country may have pushed consumers to buy more online, the firm indicated in its annual holiday report.
Still, Schultz argued that the Seattle-based coffeehouse chain is uniquely positioned to take advantage of the consumer shift to mobile and online shopping, given the company’s ahead-of-the-curve investments in digital marketing and technologies.
During the holidays, for example, consumers embraced the “convenience and flexibility” of gift cards, he said, loading $1.4 billion on Starbucks cards around the world, including $610 million in the U.S. and Canada.
“Instead of gifting a particular item, many consumers instead choose to give the gift of choice,” he said, noting that mobile and Starbucks card payments now account for about 30 percent of sales.
In addition, Starbucks coffeehouses offer an experience that cannot be replicated, Schultz argued. The positive traffic during the first quarter “demonstrates the deep sense of community and human connection that our stores provide our customers as their preferred place,” he said.
In the Americas region, which includes about 13,000 stores, Starbucks’ revenue rose 8 percent to $3.1 billion on a same-store sales increase of 5 percent, including a 4-percent increase in traffic.
Schultz said Starbucks’ same-store sales in the U.S. were also boosted by strong consumer response to new food offerings, including La Boulange pastries that are rolling out to all domestic company-owned stores by the end of 2014.
Troy Alstead, Starbucks’ chief financial officer, said food sales midday and during the afternoon outpaced other dayparts. The company expects new lunch offerings scheduled for rollout later this year to further enhance that daypart’s sales growth.
“People are recognizing that there is a fantastic food opportunity now at Starbucks at midday,” he said, as well as afternoon snack items and bakery choices for all day long.
Tests of new cold, carbonated beverages in the U.S. and Asia have exceeded expectations, and Schultz said the addition of handcrafted sodas and more tea drinks will “create a new big pot for us in the months and quarters ahead.”
In December, Starbucks opened its second Teavana Fine Teas + Tea Bar in Seattle, following the October opening of the first in New York.
This year, Starbucks expects to net 1,500 new locations worldwide, including 600 in the Americas, including more drive thrus in the United States. The company is also planning to add 750 units in China and another 150 in Europe, the Middle East and Africa.
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