Can Innovative Menu Items Drive Food Revenue Growth For Starbucks?

Starbucks (NYSE:SBUX) had a disappointing Q3 2017 as the company missed consensus estimates for revenues and earnings per share (EPS) and lowered its EPS guidance for the full year.  While comparable sales in the U.S. grew by 5% in this quarter, this growth was due to an increase in ticket size while guest count remained flat. As mall traffic witnesses a decline due to changing customer preferences towards online shopping, the company is being affected by this slowdown. However, food remains a focus area for Starbucks and the company is aiming to double its food revenue by 2021. In order to entice customers to increase their food spend at its stores, the company is introducing  “trending” and innovative food items to keep customer interest alive. Recently, Starbucks introduced a new menu item termed as “Chicken Maki Roll” which is a sushi burrito being served in two of its stores in Chicago. The sushi burrito trend is spreading in the U.S. and Starbucks is ensuring that it does not get left behind in leveraging the popularity of this new fusion food.

According to our estimates, Food, Coffee Bean and Merchandise spend per customer visit at a Starbucks restaurant is likely to increase from $ 2.26 in 2017 to nearly $ 2.78 by the end of our forecast period.

This is much lower compared to the average beverage spend by a customer per visit at a Starbucks restaurant which is around $6.

While Starbucks is known for its coffee and beverages and customers visit its stores primarily for beverages, food can potentially become a key growth driver for the company in the long term. Starbucks is looking to lure customers to buy their breakfast or lunch at its stores by offering innovating and healthy menu items. The company recently partnered with Snap Kitchen to sell their healthy lunch products in some of its cafés. Its Mercato program is aimed towards driving food revenue and introduction of new trending menu items is one of the ways the company is looking to attract customers.

While Starbucks is looking at various ways to drive food revenues, it will be challenging for the company to lure customers towards this segment. The company is considered a beverage destination and food is an ancillary spend for customers visiting its stores. A sushi burrito can attract curious customers, however, it might not prove to be a sustainable revenue driving factor.