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Starbucks COO Says Innovation Key To Reigniting Falling Frappuccino Sales

Declining frappuccino sales have inspired Starbucks to up its game when it comes to specialty coffee options. The chain, which reported Thursday that global comparable store sales grew just 1 percent for the 13-week fiscal third quarter ended July 1, 2018, has a plan to make up its losses. And its innovation.

“As consumer trends and consumption habits evolve, we’re focused on staying ahead of the market with relevant new products that reinforce the reputation of the brand,” COO Rosalind G. Brewer said during an earnings call. “While not yet enough to offset declines in frappuccino sales, we see substantial accretive growth from draft, refreshers, tea, and cold brew platforms.

“In general, consumer demand for cold beverages has grown from 37 percent of sales five years ago to more than 50 percent of sales today. There’s also strong demand for customization, including blonde espresso as an alternative to our bolder signature roasts and plant-based milk and cold foam for our cold coffee and tea beverages.”

 

Brewer said cold foam — a cold frost skim milk — launched this spring, and the chain is just beginning to explore some of its opportunities, as evidenced by its latest offering, the Salted Cream Cold Foam Cold Brew.

 

“Drafts allows us to extend beyond cold brew and has proven highly incremental, especially for occasional afternoon customers,” she said. “We’re accelerating this platform to more than 2,800 stores by the close of fiscal year 2018, up to more than 6,000 stores by year-end, fiscal year 2019. We’re also exploring multi-task systems to add customization and innovation across tea and milk.

Starbucks also expanded its refreshers line with mango dragonfruit. That offering’s performance helped fuel strong double-digit growth in the overall refreshers platform, Brewer said.

 

“And we introduced several coconut and almond milk-based beverages, including our new Iced Vanilla Bean Coconutmilk Latte. In sum, having established ourselves as the premier retailer of specialty coffee, leaning into cold-focused beverages and platforms is where we can further differentiate, premiumize, and continue to lead the market.

“Frappuccino — including both core coffee beverages and innovative new products, such as draft and refreshers — continued strong growth in the morning, our most important day-part, and continued strong performance of new stores as we opened in unpenetrated geographies. With these indicators of brand strength, we continue to move with speed to reposition the business for growth.”

Q3 Fiscal 2018 Highlights

  • Global comparable store sales increased 1 percent, driven by a 3 percent increase in average ticket.
  • Americas and U.S. comparable store sales increased 1 percent.
  • CAP comparable store sales decreased 1 percent.
  • China comparable store sales decreased 2 percent
  • Consolidated net revenues of $6.3 billion, up 11 percent over the prior year including 3 percent net benefit from consolidation of the acquired East China business and other streamline-driven activities, including Teavana mall store closures, the Tazo divestiture, and the conversion of certain international retail operations from company-owned to licensed models.
  • 1 percent benefit from foreign currency translation.
  • GAAP operating margin, inclusive of restructuring and impairment charges, declined 190 basis points year-over-year to 16.5 percent .
  • Non-GAAP operating margin of 18.5 percent declined 230 basis points compared to the prior year.
  • GAAP Earnings Per Share of $0.61, up 30 percent over the prior year.
  • Non-GAAP EPS of $0.62, up 13 percent over the prior year.
  • GAAP and non-GAAP EPS include $0.02 of unfavorability associated with May 29 anti-bias training.
  • Starbucks Rewards loyalty program added 1.9 million active members in the U.S., up 14 percent year-over-year; total member spend now represents 40 percent of U.S. company-operated sales.
  • Mobile Order and Pay represented 13 percent of U.S. company-operated transactions.
  • The company opened 511 net new stores in Q3 and now operates 28,720 stores across 77 markets.
  • The company returned $1.3 billion to shareholders through a combination of dividends and share repurchases.

China

Net revenues for the China/ Asia Pacific segment grew 46 percent over Q3 FY17 to $1,229.0 million in Q3 FY18, primarily driven by incremental revenues from the impact of the ownership change in East China, incremental revenues from 746 net store openings over the past 12 months, and favorable foreign currency translation, partially offset by the absence of revenue related to the sale of the Singapore retail operations to a licensed partner in Q4 FY17 and a 1 percent decrease in comparable store sales, according to the company.

Q3 FY18 operating income of $234.1 million grew 5 percent over Q3 FY17 operating income of $223.8 million. Operating margin declined 760 basis points to 19 percent.

 

 

 

 

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