Starbucks Corporation's Ambitious Growth Plan: How It Could Play Out

By Markets Fool.com

It's hard to believe, but the retailer thatwould become the international coffee chain Starbucks originally did not sell coffee drinks. Instead, the early stores sold nothing but roasted coffee beans.

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Obviously, the growth potential for a high-end coffee bean roasting outlet was limited, and a European-style espresso bar was added. Over the years, those initial coffee offerings grew to include frozen drinks, snacks, pastries, light meals, and, most recently, the Teavana tea brand.

Going forward, Starbucks will continue to diversify by becoming less and less a coffee business and more a cafe/restaurant that also offers high-end java drinks. Espresso, cappuccinos, lattes, and even plain old cups of coffee will remain the core of the company, but Starbucks' ambitious growth plans will be fueled by food.

The new logo does not include the word coffee. Source: Author.

Not just a coffee store
As part of that growth plan, Starbucks made a symbolic gesture this year and dropped both its name and the word "coffee" from its logo. While the move could have been seen solely as an attempt to freshen the iconic graphic, management made it clear the company did not make the move lightly.

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"What is really important here is an evolutionary refinement of the logo, which is a mirror image of the strategy," CEO Howard Schultz told USA Today. "This is not just, let's wake up one day and change our logo."

Eliminating the word coffee from its branding -- a logo that has only been tweaked four times since the chain's 1971 start -- delivered a message. Starbucks going forward will be a much broader brand focused on well more than coffee.

Meals and food will drive growth
While the chain has been steadily increasing its food offerings, purchasing San Francisco bakery La Boulange in 2013, it still has a menu consisting mostly of items that can be considered coffee-adjacent foodstuffs. Bagels, muffins, breakfast sandwiches, scones, croissants, cookies, and the like are all traditional coffeehouse fare, but in the near future those items will soon be joined on the Starbucks menu by more meal-like fare.

The company has been testing expanded menus featuring added lunch choices, as well as flatbread pizza, cheese plates, and even wine and beer sold after 4 p.m. to lure in customers during the slower afternoon and evening hours. This test offering will expand from 32 stores to over 2,700 of the chain's roughly 11,000 stores in the United States, The Wall Street Journal reported.

"We now understand better than ever before how to develop a larger food business in our stores in the morning and increasingly at lunch," Starbucks Chief Operating Officer Troy Alstead told theJournal. "The opportunity is much bigger than we thought it would be."

The company told investors at a recent shareholders day that its target for annual revenue from food in the U.S. market would double to more than $4 billion by fiscal 2019, the paper reported.

There is some risk
While Starbucks has an excellent track record of expanding its offering without alienating core customers, it does face some pitfalls in expanding its menu. Other chains such asMcDonald's have experienced problems as their food offering has grown. Bigger menus can slow service and require more training.

Starbucks struggled with slowed service a bit when it first introduced breakfast sandwiches. The company, however, has applied old-fashioned solutions to ensure food production does not slow down its coffee-making by having workers move through the line, starting drinks so they are ready by the time they are actually rung up at the register and paid for.

The chain has also been a leader in persuading people to pay electronically via its app. These cashless transactions keep lines moving, and the chain already plans to allow customers to order drinks from the app. That technology could eliminate wait times and mitigate any slowdowns caused by food orders.

Don't bet against Starbucks
While rival Dunkin' Brands seems to be endlessly testing (and failing with) ideas to expand its lunch and dinner menu (pizza, soup, and sandwiches have all been tried, some more than once), Starbucks has been a more steady hand. The company has spent most of its 40 years expanding its menu, but once an item is rolled out nationally, it's usually there for good.

Schultz has always envisioned Starbucks as a third place -- a location that is neither home nor work where people would feel comfortable and spend time. Making that third space more useful by offering lunch and dinner simply makes sense.

Starbucks already has a clientele happy to work and socialize in its stores. Offering more food will simply make the chain a viable option for consumermore often, and that should make its revenue goals attainable.

The article Starbucks Corporation's Ambitious Growth Plan: How It Could Play Out originally appeared on Fool.com.

Daniel Kline has no position in any stocks mentioned. This story was written in a Starbucks. The Motley Fool recommends McDonald's and Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.