Starbucks (NASDAQ: SBUX) shares fell a bit after the company reported its first-quarter earnings. That drop was likely because same-store growth in the United States only came in at 2%, and that was due to higher prices, not an increase in customers.
The numbers fueled concerns that the company has maxed out its market share and audience in its home country. That may be true for the chain's current format, but big changes are coming that will expand U.S. opportunity for the coffee chain.
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Premium will bring growth
In most of the U.S., it's fair to say that the coffee chain has maxed out its opportunities for new stores. In fact, a recent report from BMO Capital Markets found that the average Starbucks location has 3.6 other Starbucks cafes within a one-mile radius.
That's certainly saturation when it comes to growing via adding new stores. Or, if you look at it another way, it's an impressive retail platform to launch new products that will drive same-store growth. Starbucks plans to do that as it rolls out its premium brand.
What is Starbucks premium?
Starbucks launched its premium model with its Roastery in Seattle. That location provided the model and a testing ground for more Roasteries. Along with those Roastery locations -- essentially temples/theme parks for coffee lovers -- the company is going to open about 1,000 Reserve stores and add Reserve bars to about 20% of its locations.
Reserve locations offer a selection of higher-end products developed by the Roastery (soon to be Roasteries). It's an effort so crucial to the brand that former CEO Howard Schultz is leading the expansion effort.
"Starbucks Roasteries under design or construction in the iconic, global cities of Shanghai, New York, Tokyo, Milan, and Chicago will join our Seattle Roastery in delivering an immersive, ultra-premium, coffee-forward experience like none other anywhere in the world," said Executive Chairman Schultz in the chain's second-quarter earnings release. "Together our Roasteries, Reserve stores and Reserve bars will broaden -- and deepen -- the enduring emotional connection that exists between our customers and the Starbucks brand everywhere."