SEATTLE – Starbucks Corp. uses separate strategies to appeal to customers in its two biggest markets, the United States and China, but both strategies are achieving the same goal: comparable store sales growth.
“I do think that while we’re focused on the same key things, to create a great experience in our stores, to drive beverage innovation that’s relevant to our customers and to grow digital customer relationships, the two markets are very different,” said Kevin R. Johnson, president and CEO, in an Oct. 30 earnings call to discuss fiscal-year results.
Americas and US comparable store sales growth increased 5 percent in the fiscal year ended Sept. 29 as Starbucks focused on beverage innovation and improved in-store experience. The increase was 4 percent in China as the chain appealed to a digital-savvy market.
Johnson said Starbucks is focusing on three initiatives to accelerate growth in its US business: enhancing the in-store experience; delivering relevant beverage innovation; and driving digital relationships.
“We have strong evidence that our approach is working as demonstrated by the fact that we are seeing traffic growth across all dayparts, and we intend to build on this momentum in the year ahead,” he said.
Throughout the fiscal year, Starbucks in the United States allocated additional store labor, increased store-level training and simplified in-store tasks, often with new technology. An artificial intelligence (AI) initiative called “Deep Brew” is designed to optimize labor allocations and drive inventory management in stores.
“We plan to leverage Deep Brew in ways that free up our partners so that they can spend more time connecting with customers,” Johnson said.
In beverage innovation, Starbucks rolled out Nitro Cold Brew across company-operated stores and introduced Pumpkin Cream Cold Brew, which had an encouraging consumer reception, he said. U.S. Starbucks Reward grew to 17.6 million members, a year-over-year increase of 15 percent.
In the company’s Americas segment, operating income increased 9 percent to $3,782.8 million from $3,485.2 million in the previous fiscal year. Net revenues increased 9 percent to $18,259 million from $16,748.6 million.
In China, Starbucks Rewards program members grew to 10 million, up 45 percent over the prior year. Starbucks launched voice ordering in China in the fourth quarter.
“In China, what you see is the consumer base in China is much more digitally savvy than any other market in the world,” Johnson said. “You just look at the percent of tender that’s paid on the mobile app with Alipay or WeChat Pay.”
In International, operating income rose 11 percent in the fiscal year to $964.7 million from $872.8 million while net revenues increased 12 percent to $6,190.7 million from $5,551.2 million.
Net earnings attributable to Seattle-based Starbucks in the year were $3,599.2 million, or $2.92 per share, down 20 percent from $4,518.3 million, or $3.24 per share, in the previous fiscal year. Net revenues of $26,508.6 million were up 7 percent from $24,719.5 million in the previous fiscal year.
Starbucks gave fiscal-year 2020 guidance of 3 percent to 4 percent global comparable store sales growth. The chain next year expects to open about 2,000 net new Starbucks stores, which includes about 600 in the United States and about 1,400 in China. Earnings per share in 2020 are expected to be in a range of $2.84 to $2.89.
Starbucks reported progress in its “Global Coffee Alliance” that features a licensing agreement with Nestle S.A.
“Just one year after announcing the alliance with Nestle, we have launched three new coffee platforms in over 30 new markets: Starbucks by Nespresso, Starbucks by Dolce Gusto, and Starbucks roast and ground coffees,” Johnson said.
Starbucks expects the alliance to be in 50 global markets in the first half of 2020.
In Starbucks’ Channel Development segment, operating income fell 25 percent in the fiscal year to $697.5 million from $927.1 million, and net revenues dropped 13 percent to $1,992.6 million from $2,297.3 million. Net revenues within Channel Development dropped 6 percent in the fourth quarter as Starbucks licensed its consumer product goods and food service business to Nestle S.A. following the close of a transaction on Aug. 26, 2018.
“Excluding the impact of streamline-related activities, primarily the Global Coffee Alliance, segment revenues increased approximately 5 percent,” said Patrick J. Grismer, chief financial officer of Starbucks.
In the fourth quarter, net earnings attributable to Starbucks were $802.9 million, or 67 cents per share on the common stock, which was up 6 percent from $755.8 million, or 56 cents per share, in the previous year’s fourth quarter. Fourth-quarter net revenues were $6,747 million, up 7 percent from $6,303.6 million.
Starbucks realigned its operating segment reporting structure in the fourth quarter. The China/Asia Pacific segment and the Europe, Middle East and Africa segment were combined into one International segment. Starbucks will continue to provide supplemental information on the US and China markets.