SBUX – It’s Only Just Begun

SBUX held its annual shareholder meeting this afternoon and although the tone of the meeting focused around the progress SBUX has made over the last year, CEO Howard Schultz began his presentation by saying “there is no finish line and we are not shouting victory.”  He concluded by saying, “It’s only just begun.” 

SBUX’s annual meeting is a big event.  Today’s management presentation ended with a performance by Sheryl Crow, who admitted to being a Starbucks groupie (her babysitter is an ex-barista).  Among all of the razzmatazz, I’d say the two most important takeaways stemmed from management’s comments about its initiation of a quarterly dividend and its current growth strategy. 

Earlier today, SBUX announced that its Board approved its first ever quarterly dividend of $0.10 per share and a resumption of its share repurchase program.  Management stated that this dividend and increased share repurchase authorization reflect the true health of the company and show the strength of the company’s balance sheet.  Management refuted the idea that the initiation of the dividend is a sign that the company is no longer going to grow.  Instead, the company said that this is far from the truth as SBUX still has significant room to grow given that the company currently has less than 4% and less than 1% of market share in the U.S. and International coffee markets, respectively.

Mr. Schultz outlined the company’s significant growth opportunities, but said SBUX will pursue a “radically reframed growth strategy.”  The company will maintain its traditional growth vehicle by resuming growth of its U.S. store base while accelerating the growth of its International stores.  The new growth will come from the company’s pursuit to make its coffee available in multiple platforms in multiple formats, primarily through expanding the CPG business, Seattle’s Best and Starbucks VIA.  Specifically, Mr. Schultz thinks that both Seattle’s Best and VIA are multi-billion dollar global opportunities.  VIA is currently sold in 10,000 outlets and the company thinks the brand can easily achieve 30,000 points of distribution.  Internationally, SBUX sees big opportunity for VIA as 70%-80% of all coffee consumption is in the instant coffee category.  SBUX just launched VIA in the U.K. about three weeks ago.

SBUX thinks it can fill a gap with Seattle’s Best by making premium coffee available to customers in more places.  There are currently 560 Seattle’s Best cafes in the U.S. and the company plans to grow the concept through both new company-owned units and a franchise network.  According to management, there is a deep pipeline of franchisee perspectives.  This retail store growth will complement the brands growth through the CPG channel and through partnerships with other retailers, such as the recent announcement to roll out Seattle’s Best coffee in Burger King’s 7,000 units in the U.S.

Mr. Schultz is convinced these new avenues of growth will complement SBUX’s retail business growth.  And, he predicted that over the next 2 years, “a different kind of Starbucks will emerge.”

Howard Penney

Managing Director