3 Reasons to Love Starbucks in 2013
Jan 29th 2013 2:15PM
Updated Jan 29th 2013 3:15PM
There is no shortage of upbeat news surrounding the world's largest coffee retailer these days. Starbucks' stock climbed higher earlier this month after the company reported strong first-quarter earnings. In fact, shares of Starbucks are up nearly 6% year to date, and show no sign of slowing down. Here are three areas that Starbucks shareholders should be excited about in 2013.
1. Mobile domination
Today, a winning mobile strategy is something that no consumer-facing company should be without. Fortunately, when it comes to mobile technology, Starbucks is ahead of the game. In August, the java giant joined forces with upstart payments processor Square. The result: Starbucks coffee drinkers can now use their smartphone to make payments at 7,000 participating Starbucks locations throughout the United States.
Starbucks' recent earnings announcement proves just how rewarding a strong mobile plan can be. On the quarterly conference call, Starbucks CEO Howard Schultz said that mobile payments made up a whopping 20% of all credit card transactions in the period.
Part of Starbucks' strategy thus far has been to use SMS or text messaging to encourage participation in the company's My Starbucks Rewards program. It also used QR codes to help promote its new Verismo products. But it is Starbucks' push into mobile payments that really sets it apart from competitors.
Howard Schultz explained the impact of this, saying, "Over 7 million customers now use one of our mobile payment apps, translating into 2.1 million mobile payment transactions each week." According to Gartner, mobile payment sales will hit $617 billion in the next three years. And as an early adopter, Starbucks is well positioned to capitalize on this trend going forward.
2. Growth in China
Starbucks is one of the few American brands that are flourishing over in China. Net revenue for the China and Asia-Pacific region increased 28% to $214 million in the first quarter. This was also helped by an 11% increase in same-store sales. Thanks to this strength in China, total net revenue for the period came in at a record $3.8 billion.
Meanwhile, other large consumer goods companies such as Yum! Brands continue to struggle in the Chinese market. Yum! Brands issued a worse-than-expected fourth-quarter forecast earlier this month, after a bout of bad press concerning the quality of its chicken. The fast-food chain now expects as much as a 6% decline in same-store sales for its China division. Even McDonald's has struggled to maintain customer traffic at its Chinese locations. The golden arches have endured slowing sales in the region recently as a result of stalling economic growth.
Fortunately, Starbucks doesn't have chicken problems like Yum! Brands or McDonald's. What it does have is a strong leadership team that continues to demonstrate superior execution of its global growth strategy.
During the most recent quarter, Starbucks opened its 100th store in Beijing. The company also hopes to hit its target of opening 600 new Starbucks cafes in China and the Asia-Pacific segment by year's end. If anyone can achieve such an aggressive global growth plan, it's Starbucks.
3. New product categories
Starbucks is also driving future growth through new product categories. Starbucks entered the $8 billion single-cup coffee market last year with its Verismo machine. The company sold more than 150,000 Verismo brewers last quarter, though that's markedly below the 2 million single-serve machines its rival Green Mountain Coffee Roasters shipped.
Nevertheless, Starbucks is just getting started in this category. Give Starbucks another quarter or two and I suspect sales of its VIA and Verismo machines will start to pick up as the distribution for this platform widens.
Separately, the specialty coffee brewer's $620 million acquisition of Teavana adds yet another promising business to Starbucks' emerging brands portfolio. The deal gives Starbucks an entrance into the rapidly growing $40 billion global tea market. Starbucks has a proven track record of successfully integrating new brands into its business. Just look at what the company did with Tazo tea, which it purchased in 1999 for $8.1 million. Today, under the Starbucks umbrella, Tazo is a billion-dollar brand.
With 2013 now under way, Starbucks remains focused on its recent acquisitions, including Teavana, as well as its foray into the $3.4 billion juice market via Evolution Fresh, the single-serve market, and even the energy-drink market.
There you have it: the three things I'm most excited about at Starbucks as we head full-speed into the new year. From new product launches to the company's booming international growth story, there are more than enough reasons to like this stock.
Still, some investors may prefer the attractive valuation of Starbucks' rival in the single-serve space. With Green Mountain as cheap as it's ever been, many investors are wondering whether this is the end of the former market darling, or the perfect entry point for an enormous rebound.
You can find our recommendations for how to play the company in our new premium research report. In it you'll find everything you need to know about Green Mountain, including whether it's a buy at today's prices. Click here for instant access.
The article 3 Reasons to Love Starbucks in 2013 originally appeared on Fool.com.Fool contributor Tamara Rutter owns shares of Starbucks and McDonald's. The Motley Fool recommends Green Mountain Coffee Roasters, McDonald's, and Starbucks. The Motley Fool owns shares of McDonald's 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.
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