How Starbucks Corporation Dominated the Holiday Season

By Markets Fool.com

Nine million more people bought something at a Starbucks store this past holiday quarter than in 2013. And that's in the United States alone. Globally, the coffee giant handled 12 million additional customer transactions in the fourth quarter. Surprisingly, Starbucks managed these wins right after logging sluggish guest traffic figures in the third quarter. Management at the time told investors, "We are not satisfied with 1% traffic growth...and are taking immediate steps to grow traffic."

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Those steps paid off quickly: Starbucks posted a 5% increase in comparable-store sales over the holidays as customer traffic growth doubled to 2% in the U.S. and around the world. Here are the biggest drivers behind that impressive feat.

Gift cards for everyone
In 2013, one out of every eight Americans received a Starbucks gift card over the holidays. But even if you managed to beat those odds your chances got slimmer in 2014.

Image source: Starbucks Corporation.

The company said that a record one in seven Americans were given a new Starbucks card this past holiday season. Meanwhile, $1.6 billion was loaded onto existing cards for a 17% gain over the prior year.

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Starbucks benefits from all of that coffee-branded gifting by increasing its customer base. The retailer does its best to convert new guests into loyal, once-a-day visitors. It succeeded on that score over the holidays by adding about 1 million members to the Starbucks rewards program, bringing the total to over 9 million.

Gift card balances also correlate closely with spending -- and not just over the next quarter. That's why CEO Howard Shultz called the program, "One of the most important business drivers, as new members contribute not only to short-term increases in revenue and profit, but also long-term loyalty for years to come."

Getting it done with drinks
Starbucks' core beverage business grew 9% in the fourth quarter. And investors can thank creativity for much of that gain. The new Chestnut Praline Latte drink, for example, became one of Starbucks' most successful seasonal drinks yet. In a conference call with analysts management called it a "bulls eye" that "clearly resonated with customers." The drink isn't another Pumpkin Spice Latte, but it was successful enough to boost sales and show that Starbucks can continue to innovate around its beverage platform.

The company also got help from the new Teavana business as tea drink sales jumped by almost 20%. Starbucks expects to double tea revenue over the next five years to $5 billion. This past quarter's results suggest that the company can hit that aggressive target.

Owning breakfast and attacking lunch
Finally, Starbucks is feeding more of its customers with each passing quarter. It posted a 30% increase in food sales over the holidays. In fact, that category kicked in 2 percentage points out of the company's 5% comps improvement. Breakfast sandwiches were a hit, but the new lunch program also posted a strong 15% jump.

Starbucks posted a 30% jump in food sales. Source: Starbucks.

The good news for investors is that Starbucks is just getting started in this massive category. The company has a mere 2% market share in lunch but is aiming to significantly improve on that result. Overall, the goal is to add $1 billion of new food revenue over the next five years while boosting it to as much as a quarter of Starbucks' business in the United States.

With such a strong start to its fiscal year 2015, Starbucks is right on track to hit its goal of earning the $3.13 per share that executives are targeting for the year. That would represent a strong 17% gain on top of last year's 21% jump. But at a time when many retailers are struggling to book any profit growth at all, Starbucks over the holidays demonstrated that it can deliver on the most important driver to those gains by getting more customers into its stores.

The article How Starbucks Corporation Dominated the Holiday Season originally appeared on Fool.com.

Demitrios Kalogeropoulos owns shares of Starbucks. He has yet toreceive a Starbucks gift card but has his fingers crossed for this Valentines Day. The Motley Fool recommends 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.