This Coffee Giant Is Going Strong
tarun is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Starbucks (NASDAQ: SBUX) has always offered a premium coffee experience in terms of taste and overall ambiance. The company, like its coffee, is trading at a premium, which I believe is because of the strength it has generated as a result of its continuous acquisitions and partnerships. In this article I will focus on those acquisitions and partnerships that make it more than just a coffee shop.
Tea, pastries and more
In the company's last reported quarter, its same-store sales grew 8% globally. This was mainly because of the growth in ticket size due to its increased food offerings. Starbucks’ acquisition of Teavana and Evolution Fresh added a whole new line of beverages, fruit juices, fruit smoothies, salads, and signature bowls to the menu.
As U.S. citizens are getting more health conscious, the addition of fruit juices and salads should really help the company in the long run. Furthermore, fruit refreshers and Frappuccino ice beverages will strengthen sales during the traditionally weak summers. Starbucks acquisition of Teavana will come in very handy as it helps it expand in China and India, where tea is hugely preferred over coffee.
Another important acquisition that Starbucks has made is that of the San Francisco-based bakery La Boulange. In its third quarter, Starbucks launched its range of baked items in 1,076 outlets across U.S. The addition of pastries and baked items to the menu has been very encouraging, as food accounted for 22% of same-store sales growth in the U.S. Going forward, Starbucks' top line should move further north when all stores start selling La Boulange's baked items.
A symbiotic tie up
As I mentioned earlier, Starbucks is known for the overall experience it provides. Customers can work, study, or entertain themselves through the Wi-Fi service available at its outlets while sipping their lattes. The coffee giant has entered into a partnership with Google (NASDAQ: GOOG) and Level 3 Communications to further enhance its in-store services. According to the deal, Google replaces AT&T as the Wi-Fi provider at thousands of U.S. locations.
In its first rollout, Google will start providing its Wi-Fi service across 7,000 Starbucks stores in the U.S. The same number of outlets should also get added over the course of the following year. The new Wi-Fi service is 10 times faster than the 1.5 Mbps speed provided by AT&T. This is a smart deal for both companies, as Starbucks is getting better service while Google receives a broad market in the form of millions of coffee lovers.
Currently, the duo provides access to news and entertainment in the form of Wall Street Journal, Apple’s iTunes, USA Today, ESPN, Yahoo! Entertainment, and more. I believe that this is only a start of a long-term partnership between the companies which will pave the way for the next-generation Starbucks Digital Network.
A partnership that is delivering
Starbucks also has a strong relationship with Green Mountain Coffee Roasters (NASDAQ: GMCR). The bond just got stronger as well, with the company's recently extending their partnership for another five years. According to the deal, the duo will manufacture, market, distribute, and sell Starbucks and Tazo-branded single-serve packs for use in Green Mountain’s Keurig single-serve machines. In over two years of partnership, Starbucks has shipped over 860 million Starbucks brand K-Cups; this in itself speaks of the volume that it can generate in the future.
As a beverage, coffee has the strongest market share in the U.S. Eventually, consumer preferences for one-time, ready-to-make coffee is likely to increase; this will benefit both Starbucks and Green Mountain.
New found love
Starbucks and Danone (NASDAQOTH: DANOY.PK), the leader in everything yogurt, have entered into a partnership that will work on the synergy between the Evolution Fresh brand and the dairy expertise of Danone.
Danone currently has a strong footing in the U.S. with a 30% market share. The company is not well equipped to adapt to the shift in demand towards Greek yogurt, however. The partnership with Starbucks offers Danone a better platform to increase its market share and a strong customer base to start with.
The products will be launched in phases, with the first product to be launched being a ready-to-eat yogurt parfait that will replace Starbucks' current Greek offerings. The products will be first made available in Starbucks stores in 2014 and will hit grocery chains a year later. This strategic expansion should benefit both companies, though I strongly believe that diversifying in the U.S. should work more in Danone's favor, as it has lost a major market in many European countries.
Starbucks has grown itself from a coffee shop to a one-stop restaurant where you can sip a coffee, eat a sandwich, grab a pastry, and get some work done. This has been possible because its acquisitions and partnerships have been strategic, complementing its existing menu and atmosphere well. I expect the superb performance to continue in the coming quarters, though I would wait for a correction in price to invest in it as it is currently trading at an all-time high.
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tarun bachhawat has no position in any stocks mentioned. The Motley Fool recommends Google, Green Mountain Coffee Roasters, and Starbucks. The Motley Fool owns shares of Google and 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!