What Are The Key Factors Driving Growth For Starbucks?
Starbucks Corporation (NASDAQ:SBUX) has been posting increased customer traffic for the last few quarters and the company ended the fiscal year 2015 by posting 3% growth in customer count, thus beginning the next fiscal year on a positive note. The company’s expansion plans for 2016 involve opening 1,800 stores, of which half would be in China and Asia Pacific (CAP). We believe that international expansion, especially in the CAP region, will be one of the key growth drivers for Starbucks. The company is also working on innovative techniques such as mobile order and pay, food and beverage delivery, and expansion of its mobile payment network to other retailers to usher in an era of customer convenience and drive more traffic to its existing stores. We believe these innovative techniques to increase same store sales will also help boost Starbucks’ growth.
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Era Of Customer Convenience
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Starbucks plans to roll out its Mobile Order and Pay application to all company-operated stores in the U.S. by the holiday season. This is one of its major new traffic driving initiatives and is aimed at increasing customer convenience, reducing long waiting queues, and thus driving more volumes. Once this application is rolled out nationally, Starbucks plans to launch food and beverage delivery in select metropolitan areas later in 2015. This initiative is again targeted towards customer convenience and would enable the company to cater to customers who cannot visit a Starbucks store. The company also plans to bring retailers outside the Starbucks store footprint within its mobile payment network, allowing customers to earn loyalty stars for purchases from other retailers. This will also create incremental traffic opportunities for Starbucks.
Global Expansion With Emphasis on Asia Pacific
Starbucks has roughly 23,000 restaurants, nearly half of which are franchisees, and we expect this number to go up to nearly 32,000 by the end of our forecast period. Revenues are higher from company owned stores and we expect EBITDA margin of these stores to remain stable over the forecast period, in our base case scenario. For franchised stores, we expect a similar trend. We expect Starbucks to expand via both company operated and franchised stores. Most of this expansion is likely to come from Asia Pacific – the company expects to double its store count in this region to 10,000 by 2019. After completion of its acquisition of Starbucks Japan earlier in 2015, Japan became the company’s second largest market in retail store sales. This acquisition will position the company to further accelerate growth in the CAP region. Based on our estimates it is likely that one-third of its stores will be in Asia Pacific by the end of our forecast period.
With initiatives to drive traffic to existing stores and a firm expansion plan in place, Starbucks is well-poised to begin the next fiscal year on a positive note.
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