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Starbucks back on expansion path in Americas, China

Friday, December 7, 2012

NEW YORK—Starbucks Corp plans to increase the number of its cafes in the Americas by more than 20 per cent by opening more than 3,000 new shops there in the next five years as it looks to rely on tea and juice as much as coffee, it said on Wednesday.


The world’s largest coffee chain is also finished with acquisitions for the time being, after buying juice seller Evolution Fresh for $30 million and Bay Bread LLC’s La Boulange Bakery for US$100 million over the last 13 months. Starbucks also has an agreement to purchase tea store chain Teavana Holdings Inc for US$620 million.


“We’re pretty full up at this time in terms of our resources and capabilities,” Chief executive officer Howard Schultz said at Starbucks’ investor conference in New York on Wednesday. “At this moment in time, we have enough to handle.”


Food long has been a weak link at Starbucks, which plans to roll out sweet and savory La Boulange pastries and other goodies at 2,500 of its company-operated US shops by the end of next year. Starbucks also expects to have Evolution Fresh juices in more than 5,000 US stores by the end of 2013. The company is also expanding and experimenting with new retail concepts.


It has opened four Evolution Fresh juice stores and one Tazo tea shop in the United States, and it plans to add “tea bars” to existing Teavana stores. The goal at Teavana is to replicate the success the company had adding coffee drinks at its early Starbucks stores, which sold whole bean coffee.


“There is always a risk when you take on all these brands,” Bernstein Research analyst Sara Senatore said, but she added that Starbucks had mitigated that risk by making deals that fit with its long-term growth plans, which focus on increasing its reach beyond coffee and the four walls of its cafes.


Schultz admitted that Starbucks’ growth in 2007 and 2008—the years before its business plunged with the financial crisis—was “undisciplined.” The company is not returning to that prior strategy of “growth for growth’s sake,” he said. Starbucks’ consumer packaged goods business, which sells such items as whole bean coffee and bottled drinks through grocery stores and other retailers, could one day be as large as the cafe chain, Schultz said.


Investment Technology Group analyst Steve West said he was encouraged that the company is building a “tiered strategy” for those packaged goods. Based on the company’s moves thus far, it appears that Starbucks coffee and Teavana teas are in the core/premium categories, while Seattle’s Best Coffee and potentially Tazo tea are more mainstream brands.


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