Starbucks 'firing on all cylinders' in C.P.G.

by Monica Watrous
Share This:
Search for similar articles by keyword: [Starbucks]
Starbucks C.P.G. packaged coffee
Starbucks' C.P.G. business has fueled the company's sales.

SEATTLE — Starbucks Corp.’s consumer packaged goods business is “firing on all cylinders,” said Howard Schultz, chairman and chief executive officer of the Seattle-based coffee company.

Howard Schultz, Starbucks
Howard Schultz, chairman and c.e.o. of Starbucks

“The Starbucks brand now has the lead position and lead market share in both premium roast and ground and premium single-serve on the K-Cup platform,” Mr. Schultz said during a Jan. 21 earnings call. “By creating more opportunities for more people to engage with us more often, both inside and outside of our stores, Starbucks’ integrated highly coordinated retail and wholesale strategy is driving our business and our growth around the world. No national or global retailer has been able to leverage a retail store footprint into a C.P.G. business remotely approaching the size, scale, and profitability of ours.”

For the first quarter ended Dec. 27, 2015, net earnings attributable to Starbucks equaled $687.6 million, or 46c per share on the common stock, down 30% from earnings of $983.1 million, or 65c per share, for the prior-year period. Excluding items affecting comparability, Starbucks said its earnings per share increased 15% year-over-year.

Net revenues advanced 12% to a record $5,373.5 million from year-ago revenues of $4,803.2 million. Contributing to the strong results were an 8% increase in global comparable-store sales and a 9% bump in Americas comparable-store sales.

Starbucks’ channel development segment achieved record revenues of $512.1 million during the quarter, marking a year-over-year increase of 16%, and a 23% increase in operating income to $193.3 million.

“In Q1, each of our U.S. at-home coffee segments significantly outpaced the overall category punctuated by strong in-store execution of our holiday program in the U.S.,” said Michael Conway, president of Starbucks global channel development. “Just as our Starbucks stores turned red to signal the holidays, Starbucks also turned the aisles red with nearly two out of three grocery stores on average having a holiday display in December. In addition, our limited-time Holiday Blend coffee in both K-Cup and Roast and Grounds was the fastest selling coffee in the Starbucks portfolio in the first quarter…

“Already the leader in premium coffee, total Starbucks grew 16%, more than five times total category growth, moving Starbucks ahead of Kraft to become the No. 2 player in all of coffee.”

Starbucks holiday blend coffees 2015
Starbucks' limited-time Holiday Blend coffee was the fastest selling coffee in the company's portfolio in the first quarter.

Starbucks’ North American partnership with PepsiCo in ready-to-drink coffee beverages also posted solid results, driven by new product innovation in the Frappuccino and Double Shot platforms and through expanded distribution, Mr. Conway said.

To support continued momentum, Starbucks plans to launch coffee and tea latte K-Cups this year, even as it considers terminating its partnership with Keurig Green Mountain in light of the latter company’s private equity takeover announced in December.

“Since Keurig announced it was selling itself, we have fielded many questions about our intentions following the sale,” Mr. Schultz said. “I want to assure retailers, the millions of consumers who demand Starbucks branded coffees to their Keurig brewers, many of whom have told us that they actually purchased a Keurig brewer only after Starbucks coffee became available in the platform and at the market, that we are in the K-Cup business to stay.

“However, at this moment, the only matter that remains unresolved is whether we will be doing so in conjunction with Keurig or on our own.”

He added: “Regardless of what we decide to do, there would be no dilution whatsoever in our current ability to deliver to the market or retain the margin that has been so attractive since we started. We are in a unique position. We have the leading share. We know customers buy the brewer because of Starbucks. And it’s a wait-and-see situation.

“But the most important thing is we are reaffirming to the market and our customers they will have an ongoing stream of K-Cups, and there will be no dilution whatsoever in terms of our ability to maintain supply regardless of who is making it.”
Comment on this Article
We welcome your thoughtful comments. Please comply with our Community rules.

 

 


The views expressed in the comments section of Food Business News do not reflect those of Food Business News or its parent company, Sosland Publishing Co., Kansas City, Mo. Concern regarding a specific comment may be registered with the Editor by clicking the Report Abuse link.