Starbucks strengthening p.m. platforms

by Monica Watrous
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SEATTLE — Starbucks customers may soon be able to order merlots instead of mochas.

Part of the coffee chain’s increased focus on afternoon and evening business includes the launch of wine and beer selections in some of its stores. Starbucks Corp. tested its evening program, which also includes a menu of small plates and desserts, over the past few years in several markets and found the addition of alcoholic beverages helped drive a meaningful increase in sales during the day part.

“Based on these results, we are no longer testing evenings; we are now moving forward with the roll-out of the program in a disciplined way over multiple years,” said Troy Alstead, chief financial officer and chief administrative officer, during an April 24 conference call with analysts to discuss second-quarter results. “Ultimately, I would expect certainly greater than 1,000 stores across the U.S. to have the evening offerings.”

Items offered on the evening menu include truffle macaroni and cheese, artichoke and goat cheese flatbread, bacon-wrapped dates with balsamic glaze, and chocolate fondue. Wine lists vary by region. Starbucks has tested the concept in approximately 25 stores in urban and suburban locations across the United States.

Small plates, including flatbreads, are offered on Starbucks' evening menu in test markets.

 

“What we have seen is the wine and beer gives the opportunity or the occasion for people to use our stores in a later day part, and they use it as a meeting place, use it as a relaxing place, they use it for informal social groups to meet,” said Cliff Burrows, group president, EMEA and Teavana. “What we are seeing, which is really positive, it’s not just about wine, but it is about the shareable plates and the food. It is also people buying our traditional beverages, our core beverages. And that’s a really healthy place to be because the tone and mood of the store evolves.”

Starbucks’ new cold carbonated beverage platform also is designed to extend business into later hours. Fizzio handcrafted sodas will debut in 3,000 stores across the United States, Singapore, Korea and China this summer in three flavors: ginger ale, spiced root beer and lemon ale, with more varieties on the way.

Fizzio figures into Starbucks' plans to extend business into later day parts.

 

“Fizzio combines a healthy, all natural, preservative-free alternative to sugar-filled sodas with the theater of a custom, hand-crafted beverage that I am convinced will be a big hit with consumers and drive traffic in incrementality during the key afternoon day part, just as it did in the test markets last summer,” said Howard Schultz, chairman, president and chief executive officer of Starbucks Coffee Co.

Also driving p.m. sales are innovations in tea and food, two platforms in which Starbucks has invested heavily in recent years. New hand-crafted Teavana beverages and expanded offerings under the La Boulange banner of bakery items are rolling out to more Starbucks locations later this year. The company said La Boulange products, which are now offered in 6,000 U.S. company-operated stores and 2,500 licensed stores, will be served in all U.S. company-operated stores by the end of September and all U.S. licensed stores this year. In March, Starbucks introduced four new breakfast sandwiches, including slow-roasted ham and swiss on a croissant bun, vegetable and fontiago cheese on a multigrain ciabatta bun, egg and cheddar on multigrain toast, and reduced-fat turkey bacon on an organic wheat English muffin.

Building on momentum from the rollout of La Boulange bakery products, Starbucks in March added four breakfast sandwiches.

 

“As our bakery roll-out completes, we will turn our attention to food and other day parts, including lunch,” Mr. Alstead said. “We have significantly advanced our lunch program of bistro boxes, panini and salads over the past few years. But there is a much larger prize here, and we’re ready to go after it.”

Starbucks has begun testing various lunch options and plans to introduce the top performing products from the tests in stores next year.

“And as we roll out our enhanced lunch program next year, complemented by a diverse beverage lineup, including Teavana tea and hand-crafted sodas, we absolutely believe Starbucks stores across the U.S. will increasingly be seen as destination for a quick, delicious and high quality lunch,” Mr. Alstead said.

Average ticket during the company’s second quarter grew 3%, driven in part by a stronger food program.

“Food is an important contribution to comp growth,” Mr. Alstead said. “Overwhelmingly positive feedback from customers, and we couldn’t be more excited about what the food will do for us in the quarters ahead.”

Lunch offerings at Starbucks include paninis and bistro boxes, but more options will be tested in coming months.

 

Net earnings attributable to Starbucks during the second quarter ended March 30 were $427 million, equal to 56c per share on the common stock, up 9% from $390.4 million, or 51c per share, in the prior-year period.

Net revenues for the quarter totaled $3,873.8 million, up 9% from $3,549.6 million the year before.

Global comparable store sales grew 6% during the quarter, reflecting a 3% increase in transactions and a 3% increase in ticket. Starbucks opened 335 net new stores globally in the quarter, bringing total store count to 20,519.

In the Americas segment in the second quarter, revenues of $2.8 billion were up 8% from $2.6 billion in the second quarter of the previous year, and operating income of $605.6 million was up 10% from $549.7 million, reflecting lower commodity costs.

In the EMEA (Europe, Middle East and Africa) segment in the second quarter, revenues were up 13% to $309.9 million from $273.2 million, and operating income rose 240% to $17.7 million from $5.2 million.

In the China/Asia Pacific segment in the quarter, revenues rose 24% to $265.9 million from $213.6 million, and operating income was up 27% to $87 million from $68.3 million.

In the channel development segment, revenues increased 10% to $370.4 million from $338.1 million, and operating income increased 35% to $127.3 million from $94.1 million.

For the first six months of the fiscal year, net earnings attributable to Starbucks increased to $967.6 million, equal to $1.26 per share, up 18% from $822.5 million, or $1.08 per share, during the same period of the previous year.

Net revenues for the first half of the year advanced 11% to $6,411.8 million, which compared with $5,797.3 million the year before.

For fiscal 2014 companywide, Starbucks expects earnings per share in the range of $2.62 to $2.68, revenue growth of 10% or greater, global comparable store sales growth in the mid-single digits and approximately 1,500 net new stores.
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