After Starbucks (NASDAQ: SBUX) announced earlier this month that its visionary CEO, Howard Schultz, will step down to focus on the development of the company's premium Reserve Roasteries, it was time for the company to revisit its longer-term expectations for shareholders. That's exactly what Starbucks did on Wednesday, when the company presented its five-year plan.
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Starbucks plans to pioneer innovation and new customer experiences at its new Reserve Roasteries. Image source: Starbucks.
Here's a brief overview of the plan in five key points.
1. More growth is on the way
As Starbucks' seven-year board member, Kevin Johnson, steps up to take over the reins from Schultz in April, the coffee giant sill expects years of caffeinated growth.
Over the next five years, Starbucks expects revenue and EPS to increase at annualized rates of approximately 10% and 15%-20%, respectively. For context, Starbucks revenue and EPS have increased at annualized rates of 12.8% and 18.6%, respectively, during the past five years. So the company's five-year plan shows that management expects growth to remain at similar levels.
It's worth noting that analysts are currently modeling for Starbucks' EPS to increase at an annualized rate of 16.9% over the next five years. Starbucks' expectations, therefore, are slightly more bullish than those of the analysts -- at least based on the midpoint of Starbucks' guidance range for EPS. Perhaps management's comparatively higher expectations for growth is one reason the stock rose about 2.3% on Wednesday.
2. Starbucks is still betting on China
Starbucks re-emphasized its focus on driving growth in China, saying it will unlock "high-value opportunities" in the market.
Starbucks' five-year plan noted that its newest class of stores in China is driving higher profitability than any other store class in the company's 17-year history. Capitalizing on this opportunity, the company plans to continue investing aggressively in the market.
Starbucks currently operates about 2,500 stores in China and is opening over a store a day, but the company said it expects this growth rate to "continue to accelerate well into the future."
The coffee giant also said it remains on track to open over 5,000 stores in the country by 2021.
3. Starbucks' digital flywheel is key
With what Starbucks claims is the "most robust mobile ecosystem of any retailer in the world," the company will continue to double down on its "digital flywheel," or its mobile capabilities such as mobile payments, prepaid mobile cards, and loyalty programs.
In conjunction with the company's efforts to continue adding value for its 12 million-plus Starbucks Rewards members, Starbucks unveiled an ordering system based on mobile messaging and artificial intelligence:
"StarbucksMobile App customers will be able to place their orders via voice command or messaging interface,delivering unparalleled speed and convenience, enhancing customer loyalty and engagementand further extending the accessibility of theStarbucksapp."
The mobile app feature, called My Starbucks Barista, will begin rolling out on iOS in a limited beta early next year, the company said.
4. Premium, premium, premium is the focus
Reflecting the priority Schultz is pegging on the company's new premium Reserve Roasteries, it's no surprise Starbucks is stepping up its premium offerings. To do this, Starbucks said it expects its Reserve Roasteries to "serve as an innovation pipeline that will elevate the brand and contribute a 'halo' to the entire Starbucks Experience." Starbucks calls this effort its "premiumization strategy."
Starbucks Reserve Roastery in Seattle. Image source: Starbucks.
Specifically, Starbucks anticipates that its focus on Reserve Roasteries will lead to new premium product breakthroughs that can be "segmented strategically across all Starbucks stores."
The company opened its first Reserve Roastery in its hometown Seattle two years ago, and it now plans to "accelerate the presentation of the Roastery experience around the world."
Starbucks plans to open its next Roastery in Shanghai next year, followed by ones in Tokyo and New York City in 2018 and a fifth location in Europe that the company will announce details for early in 2017.
5. Starbucks expects growth beyond its stores
Looking beyond stores, Starbucks wants to continue to emphasize growth in its channel development segment, or consumer packaged goods, licensed stores and food service, and ready-to-drink offerings.
Starbucks expects the segment's revenue to increase by $1 billion and operating income to increase by 75% during the next five years.
While Starbucks' five-year plan doesn't necessarily include any major changes to the company's strategy, it's good to see management still expects more meaningful growth. Of course, growth should be expected; Starbucks continues to grow at a rapid clip, with revenue and EPS up 16% and 26% year over year in the company's most recent quarter and comparable store sales up 4% globally -- and there's nothing on the horizon that looks poised to stifle Starbucks' domination.
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