Starbucks Corporation (SBUX)
December 05, 2012 8:00 am ET
Howard D. Schultz - Founder, Chairman, Chief Executive Officer and President
Clifford Burrows - President of Starbucks Coffee Americas and US
Adam Brotman - Chief Digital Officer
Jeffery J. Hansberry - President of Channel Development & Emerging Brands
Michelle Gass - President of Starbucks Europe, Middle East and Africa
John Culver - President of Starbucks Coffee China and Asia Pacific
Arthur I. Rubinfeld - Chief Creative Officer and President of Global Development & Evolution Fresh Retail
Troy Alstead - Chief Financial Officer, Principal Accounting Officer and Chief Administrative Officer
David Palmer - UBS Investment Bank, Research Division
Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division
Jeffrey Andrew Bernstein - Barclays Capital, Research Division
John W. Ivankoe - JP Morgan Chase & Co, Research Division
Keith Siegner - Crédit Suisse AG, Research Division
John S. Glass - Morgan Stanley, Research Division
David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division
Michael Kelter - Goldman Sachs Group Inc., Research Division
Mitchell J. Speiser - The Buckingham Research Group Incorporated
Ronald J. Hottovy - Morningstar Inc., Research Division
Will Slabaugh - Stephens Inc., Research Division
Rob Wilson - Tiburon Research Group, Inc.
Sharon Zackfia - William Blair & Company L.L.C., Research Division
Joseph T. Buckley - BofA Merrill Lynch, Research Division
Gregory R. Badishkanian - Citigroup Inc, Research Division
Alistair Scobie - Atlantic Equities LLP
Howard W. Penney - Hedgeye Risk Management LLC
Larry Miller - RBC Capital Markets, LLC, Research Division
Good morning. We expect people keep rolling in for the next few minutes, so we're going to go ahead and get started. I'm going to secure some housekeeping first and then we'll go on with the show. So first off, hope you enjoyed the lobby displays and also sampled some of our goodies. Those of you here in the East Coast haven't had the opportunity to sample La Boulange yet probably or Evolution Fresh, so hope that you took advantage of that, wonderful products and we are really excited to have them here today. Restrooms are downstairs. There's a dining hall, it's called The Hall, the dining room that is where we're having lunch and so the restrooms are right to the right of that. There's going to be a webcast. So when we go through Q&A, we're going to ask you to wait for the mics to come to you and we'd like you to address yourself by your name and your firm's name please. And during the break, certainly, we'll have sampling going on in the lobbies as well. We would like you to take back here -- when I come up and give you the break sign and we go out for 20 minutes, I'd love you to get back here as soon as possible so we could get restarted on the webcast right on time. I think that's it for housekeeping, and we are ready to roll with the webcast, please.
Good morning, and welcome to Starbucks 2012 Biennial Investor Conference. I'm JoAnn DeGrande, Investor Relations, and we're really excited to have you here today. On behalf of management and the Investor Relations team, we're excited to be back with you 2 years after we rolled out the Blueprint for Growth with you right here and we've got exciting developments along the way in our journey.
Let me give you an overview of the agenda and hopefully you've picked one up today when you came in. Following an opening from Howard Schultz, you'll hear from each of our business unit presidents, along with the President of Global Store development, our Chief Digital Officer and the founder of La Boulange is here with us today and is now the SVP and General Manager of Starbucks.
The agenda includes 2 breaks and then we expect to adjourn following the final Q&A around 1:00 p.m. Eastern Time. There will be several Q&A sessions that'll follow each business unit presentation. For those of you joining via the webcast, you'll be able to follow the presentations along online and the webcast and the slide presentation will be posted later this evening on our website.
Of course, before we get started, your favorite part, when I get to the slides and disclaimer that you're all waiting for, the new disclosure of the day. So forward-looking statements, there will be a number of forward-looking statements made today that should be considered in conjunction with the cautionary statements contained in the company's statements, filings, SEC filings. Those forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Starbucks assumes no obligation to update any of these forward-looking statements or information. Please see our filings with the SEC, including our last annual report on Form 10-K which we just filed recently. It is now my sincere pleasure to introduce to you our Chairman, President and CEO, Howard Schultz.
Howard D. Schultz
Thank you, JoAnn. As JoAnn said, we are very excited to share with you the operations of the company, to walk you through the vision for the future and then, most importantly, how we're going to execute against that we feel is an extraordinary growth opportunity for Starbucks on a global basis.
Over the last few years or so, I have been a student trying to study what really makes great enduring companies and I've looked at hundreds of organizations trying to really crack the code on what really does it take to build sustainable success, to win a championship season year after year. I've even studied sports franchises. And although there are many characteristics that I've uncovered, I just want to share 3 with you. The first is, that a company, an enterprise, an organization, even a sports team, has to have a finite understanding of their core purpose and their core capabilities. Second, there has to be a lot of courage and conviction about reinvention and the timing of reinvention. And I think as you'll hear today, we believe strongly that as we push forward as an organization, we have to push for reinvention, self renewal and have the courage and conviction to take big swings. And the third and perhaps most importantly is culture, values and a deep sense and a large reservoir of trust within the organization and trust in leadership.
I mentioned sports teams, I know there's a lot of people here from New York. I'm not here to talk about sports, obviously. But if you compare the Giants and the Jets, if you compare the Yankees and the Mets, you guys understand what I'm talking about. I know, give me a little break here. But along the way of studying companies, I came across something that was very surprising, and I think you'll agree, quite stunning.
Let's look at the 1928 original Dow 30. Take a look. You can see these are extraordinary names, great companies, and the question rhetorically is, which company or companies stood the test of time since 1928? Give me a guess. Let me hear you. Which company on this list stood the test of time or companies? GE, what else? Come on, this is a smart group. What other company?
Howard D. Schultz
Okay. Anyone else? Maybe -- you must be older. Okay. Let's go ahead with it. One company, GE, the only institution, the only organization, the only enterprise after 84 years that stood the test of time, that builds an enduring organization. It's unbelievable, one company from the original Dow 30 is left. Now I want you, as you sit here today and listen to us talk about our company, our aspirations, our dreams for the future, I want to frame for you the lens in which we are trying to talk about Starbucks. Because the declaration that we want to make today is that our aspiration as a company, our belief in our organization is that we want to be in GE's class. We're not just building a company for today. We want to build a great, enduring company, an organization that goes back to those 3 characteristics: core purpose, core capabilities, the courage to reinvention and the understanding that great companies, great organization stands for something beyond just making a profit and that is culture, values and a large reservoir of trust within the company and trust in its leadership.
Now in 1987, Starbucks had 11 stores and 100 employees and we had a dream to create a national brand. We also decided that we want to build a different kind of company, not better than anyone else, but it was different. And we frame from day 1 that our intent to build a national brand was also to create a fragile balance between profitability and a social consciousness. That was 1987, 11 stores, 100 employees and a dream.
Let's go to today. As we sit here today, there's 18,200 stores in 61 countries, employing over 200,000 people whom we call partners, and we're serving over 60 million customers a week. And I'm here to tell you that we're not satisfied, we don't feel we've accomplished the aspirations that we have and we honestly feel that our best days are in front of us.
Now I want to say something else. Even though our aspirations are to be in the class of GE, I also want to say we are not a perfect organization, we're not perfect. We are going to make mistakes. We're going to disappoint at times, but our aspirations over a long enduring period is to build a great, great enduring company.
Of the 18,200 stores, I want to isolate 1 store of the 18,200 and tell you a story about the store. This store is 1,000 square feet. It's had 20 consecutive weeks this year of over $100,000. Its revenue in fiscal '12 at the end of September was approximately $5 million. It had double-digit comps and was opened in 1971, our first store in the Pike Place Market, 1971, $5 million store, 20 consecutive weeks, $100,000 and double-digit comps. Now all of us at Starbucks this year were stunned to see these kind of numbers. So one day this summer, I went down to Pike Place because I was looking at these numbers and I couldn't believe that we can do $100,000 a week in 1,000 square feet with 3 stores within a mile of the store. So I went down to see it. After I went down to see it, I said, I need to bring a film crew down here the next day to capture what I saw. I want to share it with you.
So this is a raw video in July of the Pike Place store. And I walked in here and I've seen all these people online queued around the block. I'm saying, "What are we giving away? What is going on here? Why are people from the United States and all over the world rushing to the Pike Place store? What is -- what have we created? Is it the mystique, is it real? What is it that's driving all these people into the store?"
This is an unbelievable example of the power of the Starbucks brands and the emotional engagement and relationship that we have with our customers. And I would submit to you that there's a piece of Pike Place in all of our 18,200 stores in 61 countries. Let me explain.
Starbucks has been in business for 41 years. One could say that we have built one of the most recognized, respected brands in the world. But the truth is, the equity of the Starbucks brand has been built in the most unconventional manner, quintessentially by the experience. And as you'll hear today, we have the significant view that the rules of engagement going forward in building brands, in building an emotional connection with the customer is a much different exercise today than it was 40 years ago when we started. But there is one thing, one common thread, and that is the emotional relationship and the sense of humanity that exists inside Starbucks stores.
Every year since we've been in business, we have spent more money on training than we have on marketing. We are not a marketing-driven organization. The most important characteristic of any brand is trust. And I think the unique relationship that we have with our people, who we call partners, because in 1989, we became the first retail company in America to provide equity in the form of stock options and health insurance to every single employee who works more than 20 hours a week. We built the brand from the inside out. We built the brand by understanding that if we, as a company, even in 1987 when we had 11 stores, were going to attempt to exceed the expectations of our customers, the only way we could do that is to exceed the expectations of our people.
So here we are, 2 consecutive years of record revenue, record profit, the equity of the Starbucks brand has traveled around the world and we're in a position today to step on the accelerator and grow the company. But I want to make the distinction, I think this is very important, that in 2007 and 2008, the growth of Starbucks was undisciplined and growth was more of a strategy as opposed to an outcome. We learned that lesson and the discipline, the capability, the talent inside Starbucks today is unprecedented. We have challenges, we have issues, but we've never been in a better position in terms of the strength and power of the Starbucks brand and the capability inside the company to really understand how to grow Starbucks domestically and internationally.
As a result of that, the last 2 years of opening stores in the U.S. when some people, maybe even some people in this room, thought that Starbucks in the U.S. was reaching saturation, we proved to ourselves and to the outside world that, that is simply not true, 2 consecutive years in which the class of '11 and class of '12 has produced some of the best unit economics in the history of the company. Sales to investment ratio of 2:1, very strong comp store sales and average unit volumes at record levels.
As a result of that, you'll hear Cliff Burrows talk today about accelerating the growth of our U.S. business and opening up at least 1,500 new stores over the next 5 years in the U.S. alone. And we strongly believe that as a result of the demography, the data, the science and the experience we have, that these locations in the returns will mirror what we've been able to accomplish in 2011, 2012. And anyone who walks out of this room today thinking that Starbucks is establishing undisciplined levels of growth or acceleration is dead wrong because we're taking advantage of the strength of our core business and capitalizing on that to significantly drive shareholder value in our core market in the United States of America.
Now I could spin around the globe and isolate many countries where we have opportunities, but I'd be remiss if I didn't talk about China, and you'll hear John Culver talk a lot about that this morning. We've been in China now for 13 years, and I'd say for the first 7 or 8, candidly, we kind of stumbled through it. We made a lot of decisions. We made some mistakes. We didn't get it exactly right and I'd say about year 9 or 10, we began to see a significant change in the experience of our stores and I saw it first-hand because I was going to China 3 or 4 times a year. And what we saw was in the first 8 or 9 years or so, most of our customers were tourists and ex-pats. And then all of a sudden, we began to crack the code of local relevancy, local relationship and a deep level of respect from the Chinese consumer. When you walk into Starbucks stores today in any market within China, and we're in like 70 cities, and you will see many, many more Chinese nationals than tourists or ex-pats. The market for Starbucks Coffee Company in China will produce, over time, thousands, thousands of Starbucks stores.
The team in China is primarily Chinese nationals. The head of Starbucks China is Belinda Wong, a fantastic leader, who has built a fantastic team who understands the consumer, understands the real estate, understands the competitive issues, understands the relationships that we have to continue to build in terms of the trust with the government, and we are being held up in China as the kind of corporate citizen from the U.S. that is deeply respected by multiple constituencies. And as a result of that, our opportunity to grow that business in a significant way, taking advantage of the unit economics, the sales to investment ratio today of 3:1, you'll hear from John the optimism we have about China's business today and going forward, that over time, thousands of stores.
Now as I said, I can isolate many markets. I can talk about what's going on in Latin and Central America. We're not going to have that time and John's going to speak a lot about our international business.
Now 2 years ago when we were here, we introduced the idea, the theory, and I think this is a very important moment for me to kind of walk this through with you of our profitable group Blueprint for Growth going forward. And what I said 2 years ago was, I believe that we had an opportunity to capitalize on the unique assets that Starbucks has to, in a sense, do something as a consumer brand that has not been done before. Let me explain.
Starbucks today has a national and global footprint of retail stores all over the world. These stores are not franchised. They're company-owned or they're in partnerships with fantastic JV partners around the world. I make that distinction because we have the ability and the nimbleness to almost do anything and turn on $0.10 and we do not need permission from franchisees to do it. We own and operate our own stores.
Now over 10 years ago, we had a significant opportunity to build a sub brand within Starbucks stores, which was blended Frappuccino. That was the cold version of being able to capitalize on warm weather and an afternoon daypart many years ago. And as a result of that success, we had the idea many years ago, would it be possible to take the loyalty and the brand and the category of blended Frappuccino from our stores and leverage that into multiple channels of distribution and partner with a company who have the capability to bottle it and distribute it? And the story goes, that Starbucks and Pepsi have built a multibillion-dollar brand in Frappuccino.
Now I would submit that the success of Frappuccino, which is ubiquitous now in North America would never have occurred and certainly would not be as successful if we do not have the unique opportunity every single day to reinforce the equity of the Frappuccino blended product in our stores. So fast-forward 2.5 years ago, when we had the idea to reinvent instant coffee, we looked at the category of $24 billion instant coffee category that had not had any innovation in over 50 years other than packaging, and we believe that through technology, we could crack the code of producing a cup of coffee that would mirror the taste of Starbucks.
Now the opportunity for VIA all along was in grocery, not in Starbucks stores. But if we had the opportunity within Starbucks stores to introduce it into retail stores and have the patience to build the brand, build the customer relationship in over a year's time, strategically understand that, that was all part of going into CPG. And as you'll hear from Jeff Hansberry today, VIA is a $300 million business already in 80,000 points of distribution and the leading share of what we've been able to accomplish in single-serve instant coffee.
And there were people, maybe people in this room but certainly people in the press that said, "This the end of Starbucks. This guy, Schultz is out of his mind. Instant coffee? Are you kidding?" Let's go back to my original premise. Those companies today, any company, any industry, any consumer brand that are embracing the status quo as an operating principles are going to be dead. We must push for reinvention. We must push for self-renewal and we must have the courage to use technology and leverage our assets in ways in which we can significantly differentiate ourselves from any other company in our space. And that's why this Blueprint for Growth is so valuable going forward because in the last 2 years, Jeff Hansberry and his team have not only been able to take these product into CPG, but they have now built the superhighway of infrastructure, resources and capabilities in which the future of the company is going to be creating products in our stores, having the patience, building the brand and bringing it into CPG domestically and internationally. And this is just the beginning. And I would say, I might get killed for this later, that CPG at some point in the future of Starbucks, will be as large as the U.S. retail business. That's how deeply committed we are. And you'll hear from Adam Brotman, when we start talking about social and digital media that the intent of the company is to integrate the loyalty program and all our assets into CPG and back and forth.
So this model today that we have built is in its infant stage of what Starbucks is going to become. But don't misunderstand one thing. Our core business, our reason for being, our capability, we have been since 1971 and we will be today and in the future always a retail company, whose core business and reason for being is to ethically source and roast the highest quality coffee in the world and create this unique sense of community, intimacy and relationship with our customers. However, you take this model and then you integrate it with the assets that we've developed around social and digital media, loyalty card and commerce and you take this thing and you literally put it on steroids. And you'll hear from Adam today that we have, over the last 2 years, in many ways, created the most significant level of assets and capabilities of any consumer brand and certainly the #1 retailer brand, maybe in the world, as it relates to social, digital, card loyalty and mobile payments. And all of that is going to be integrated into how we go to the market, how we differentiate ourselves from our competitors and how we use those assets, not only to communicate with our customers, but most importantly, to emotionally engage with them and reward them for buying Starbucks Coffee and other products in multiple channels of distribution.
Now that takes me to the acquisitions that we've made over this past year. Now 2 years ago, I've stood before you and I said, at that point, we're sitting with about $2 billion of cash, the currency of our stock price gave us the flexibility and I said publicly that we would be looking towards acquiring those companies that we could leverage and integrate into that Blueprint. And I think we've done exactly that. Let me explain it.
Let's start with Evolution Fresh. Now in all of our stores all over the world, we have been selling juice for many years. We've also understood from our customers the need for Starbucks as a retail store to get healthier and for us to make the statement to our customers and the marketplace that we were deeply committed to health and wellness and we identified this health and wellness category as a massive opportunity and through our own research and understanding, we have significant license to participate. So the acquisition of Evolution Fresh, a $30 million acquisition, relatively small, was designed to do 3 things: The first, significantly upgrade the quality of juice in our stores, with a piece of technology that you'll hear from Jeff, that absolutely in any blind tasting, 100% of the time, between Evolution and anything else in the market, Evolution Fresh is going to win. So in about 2,000 stores already, we have brought Evolution Fresh into Starbucks stores and we are seeing significant increases in the rate of sale, significant increases in the operating margin as a result of the quality, the integrity and the proposition of Evolution.
In addition to that, we believe that there is an opportunity to create a health and wellness store and other Evolution products. And as a result of that, we have opened 4 Evolution Fresh stores. I would say that we are learning a great deal. We are pleased with the outcome. But the big opportunity going back to the Blueprint for Growth is to bring Evolution Fresh into every Starbucks store across the country, have the patience to build the brand and integrate that into every grocery store in America by leveraging the brand proposition and the validation of Starbucks Evolution in our stores and doing exactly for Evolution what we've done for VIA and what we've done for Frappuccino. And we are in a couple of thousand stores, in grocery stores and Starbucks stores already. And the early signs in both Starbucks stores and grocery are extremely positive. And I would say that you're going to see other Evolution products that are health and wellness driven, inside Starbucks stores as we build the brand and, over time, in CPG.
Now the Achilles' heel for Starbucks for many, many years, and we've talked about it openly, has been our inability to create fantastic fresh, delicious food in Starbucks. The primary reason is we're not a restaurant. We're not baking, we're not cooking and we have no intent to do that. So for the past 18 months, we have been searching the country and the globe for the kind of food purveyor and artisan baker that we could find to do one thing: transform the quality of fresh food in Starbucks stores.
And in a few minutes, you're going to meet Pascal Rigo, the founder of La Boulange. This guy, you'll see, is as passionate about what he does about French, fantastic food and baked goods as we have been for the last 41 years in our coffee business. To date, we have tested La Boulange branded food inside Starbucks stores in Northern California with a fantastic result in terms of the increase in the rate of sale and the increase in the operating margin. And as you'll hear from Cliff and Pascal, our plans are to transform the entire country with branded La Boulange food inside Starbucks. And eventually, going back to Frappuccino, VIA, Evolution, once we've built the La Boulange brand inside Starbucks, we will have the flexibility and the intent to bring La Boulange branded food into selected grocery stores.
Now we get to the tea question. So the original name of Starbucks Coffee Company in 1971 was Starbucks Coffee, Tea and Spices. We have always been in the tea business. But over the last 10, 20 years, because of the domination of Starbucks customers interested in coffee and the interest that they have in customized beverages, tea became a smaller and smaller and smaller percentage of sales in Starbucks, less than 1%. Yet, we're looking at a $40 billion category, growing at double digits all over the world. And we concluded 6 months ago that the tea category was ripe for innovation.
Now in 1987 when we had 11 stores, we had identified something within Starbucks, and I think this is an important reminder. Starbucks Coffee Company in 1987 was just selling pounds of coffee, whole bean and ground coffee. We were not yet really in the beverage business. The transformation of Starbucks from 1987 to today was bringing the romance of espresso and customized beverages into our stores. What did that do? Created frequency, created loyalty and changed the entire economics of our store and our company and reinforced the brand all over the world.
So we found a company called Teavana. Many of you know Teavana. Teavana is a company 15 years from its founding -- from its founders, Andy and Nancy Mack, and they've built an extraordinary, young, relatively small business. What we found was 300 mall-based stores with fantastic unit economics, over 2:1 sales to investment ratio. When we started talking about Teavana and meeting them, we discovered a few things: their passion and knowledge for the highest quality tea in the world, we felt, was unprecedented; second, despite the unit economics of a mall-based store being so strong, they have no beverage business. What is our core capability? Our core capability is the understanding of creating hot and cold customized beverages and being able to integrate that into a retail store as we did in 1987 at Starbucks.
We are going to transform the entire tea category and we're going to do it with Teavana in 3 ways. First off, Teavana is mall based. They have 1 or 2 street-level urban stores, one on Lexington and 86th Street, but their mall-based business is 99% of what we do -- what they do. Our capability as a company, our real estate acquisition strategy, our design capability and our ability to open and operate stores, we may have the best retail real estate portfolio of any small box retailer in the world. Overnight, we're going to be able to complement Teavana's mall-based stores with an array of urban street locations, which will take advantage of the capability we already have. And we're going to significantly grow the Teavana U.S. platform and footprint of stores. That's the first thing.
The second thing is, just last month, we opened up a Tazo retail store, which might sound confusing. Why would you open up a different -- a tea store? For the sole purpose of learning and building a laboratory and the beginning of understanding how we can integrate the beverage inside a high-end tea store. In the first 3 weeks of Tazo's operations, we have significantly outpaced what Teavana has done in 15 years in any one of their stores in terms of the beverage. And so the beverage will become part of Teavana's core business in their 300 stores over time, and the new stores that we will open, urban street locations, will be integrated with the kind of tea bar that will create customized hot and cold tea.
And by the way, since we've opened Evolution juice, we created an opportunity to create customized, fantastic, unique blended juice products that we believe we can integrate into the Teavana tea world. So we're going to increase their store count, mainly in street locations; we're going to integrate the beverage inside their stores; and thirdly, we will look at the national footprint of Starbucks stores as an opportunity to integrate Teavana into Starbucks. And we're not going to say much more about that today, but we believe, given the 60 million customers that come to our stores, the opportunity to create awareness, trial, loyalty and integrate that back into Teavana is a significant opportunity to add value.
And then lastly, going back to the Blueprint for Growth, the master strategy, there's no doubt in our mind that over time, we can create a 2-tiered brand CPG strategy. Tazo is already a $1 billion brand, that they can coexist, and we can integrate and leverage the superhighway that Jeff and his team built in CPG and put Teavana in there at the appropriate time when we feel it is -- the brand is built and it's ready for prime time with multiple channels of distribution.
So if you look at Evolution and you look at La Boulange and you look at Teavana, what, hopefully, you can see is the very thoughtful, very strategic understanding of how we can enhance our core business and how these acquisitions are part of the connective tissue of the master Blueprint for Growth. And as I speak about this, I'm only currently talking about the domestic opportunity.
Now one question I'm sure I'm going to be asked, are there other acquisitions coming? And I would say, we're pretty full up at this time in terms of our resources and our capabilities. And unless something significant comes up that we think is fantastic and will add significant shareholder value, I would say for this moment in time, we have enough to handle.
Now I've tried to frame for you a few things. One, our aspiration as a company despite the 2 record back-to-back years and the 18,000 stores around the world, the CPG business that we are just getting started, that I personally am committed with our leadership team to being the kind of company that one day will be in the class of the only company left on the original Dow 30. And I realized standing up here today and saying those kinds of things, maybe it sounds arrogant, but I want to be truthful with you. We are just getting started. We want to make history as a company. We want to be one of the most respected, admired companies in the world. But we also want to do it in a way in which we are performance-driven and that performance is married and integrated with managing and leading the company through the lens of humanity.
I said earlier about the rules of engagement of how brands have been built and the changes today. It's not only the seismic change in terms of social and digital media, there's something else going on, and it's important to share it with you. What's really going on in terms of building brands today is not only conventional marketing and advertising and PR, is subordinate to digital, it's much more than that. Customers today have so much insight and information about what a company stands for, and they're asking very important questions, questions about values, questions about guiding principles, questions about how you're treating your people, whether or not you're giving back to the communities you serve. Well, this is nothing new to Starbucks. We've always taken the road less traveled going back to '87 and trying to build a company with a conscience, trying to build a company that's benevolent. The equity of the Starbucks brand, the emotional engagement, all the things that have contributed to our success is deeply rooted in this large reservoir of trust, which is fragile.
Our success, we understand, is not an entitlement; we have to earn it. I saw a fact not too long ago as I was studying these companies and looking at sports teams, that 80% of the sports franchises in the world in any sport that won the championship last year, 80% of them will not repeat. Why? It's human nature. You're not as hungry, entitlement sets in, hubris sets in. Well, let me share something with you. We are as hungry today as we ever have been. There's no sense of entitlement, there's no hubris. We understand the opportunity we have and I would frame it like this. I strongly believe that we are on the precipice of greatness. But the burden of proof is on us. We have to prove it to you, to our customers, to our employees and the marketplace, but our ambition as a company is much greater and much more significant in terms of the impact that we want to make in the world.
Now I started out with looking at Pike Place, our first store, and I thought I'd end with the last store we just opened in India. Take a look.
Howard D. Schultz
We've never quite opened a store with this level of excitement and fanfare. We have seen pictures, but none of us could have imagined the elegance, the style and the beauty of the store. We are extraordinarily proud to be a part of this.
Thank you very much. So at this point, I'd like to introduce Cliff Burrows, the President of Starbucks Americas business. Thank you very much.
Good morning, ladies and gentlemen. It's my great pleasure to be here sharing with you the story of the Americas. My name is Cliff Burrows. I'm President of the Americas in the U.S. and I'm an 11-year partner with Starbucks. Well, it has been a time of record results and great achievement. We have 14 countries where we serve Starbucks Coffee in North America, Central America and South America. We have over 12,900 stores and we have 145 people who've put on the green apron every day, and our strength is fueled by accelerating profitable growth, maintaining a maniacal focus on the day-to-day, focusing on the customer in front of us as we make their coffee and go by our daily work. And it's also about building talent, continuing to strengthen our bench, the people who are going to lead our business today and in the future.
Now I would like to just review the results for the region as a whole and then go a bit closer in the marketplace. Our sales in financial year '12 were almost $10 billion, a growth of 10% on the year before, and our operating income was nearly $2.1 billion. That was a growth of 13% year-on-year. And we're seeing with our operating margins of nearly 21%, that we manage a 60 basis point improvement at a time when commodities and economic challenges in that area were, given the headwind, of about 110 basis points.
And really, in the first 12 months of pulling the Americas together, we have seen incredible success from just the benefits of synergies coming from the U.S., coming from Canada and Mexico, the larger countries leveraging each other and also bringing to bear the resources and the depth of experience in the U.S. to help newer markets like Brazil. So those, for us, have all been great trends and helped us in all geographies where sales growth is strong and profitability growth is strong.
The same time, we've managed to open -- in financial year '12, we opened 645 new stores, net new stores across the region. Now our economics at a portfolio level are also strong in the U.S. and Canada. When we look at our average unit volumes in the U.S. across our 6,800 stores company owned, we're seeing average unit volumes today of $1.2 million and a very healthy cash profit. We're also seeing, as we open up new stores, and Howard referred to it earlier, that we're seeing very healthy first year sales in excess of $1 million and we're maintaining our sales-to-investment ratio of more than 2:1. Now our opportunity, as we go forward in the coming year, is to get the Canadian metrics much closer to the U.S.
Now let me focus for a few moments on our Canadian business, and we have somebody now running our Canadian business, our President, who was here 2 years ago, many of you met her. Our recently appointed President is Annie Young-Scrivner. I'd like Annie just to stand for a moment. Many of you recognize her from 2 years ago, Annie Young-Scrivner. Annie is now living in Toronto and getting her arms around Canada and other traditions, so it's great to have her experience in that market.
And we see a great opportunity to open new stores there, both company-operated opportunities in Central and Eastern Canada that remain untapped and also to grow our license portfolio. And one area we're going to see rapid growth is within Target stores as they complete their acquisition and start to convert stores over to Target. And we see the opportunity there will open more than 100 stores in the next 18 months with them.
Now I'm reminded frequently, and certainly when you visit Canada, competition is very different in Canada. It's in the shape of the local business. Tim Hortons, who have more than 3,000 stores today, and they're pretty much in a head-to-head with McDonald's in terms of competing in the market and they have -- McDonald's have more than 1,500 stores in the market. So in some ways, we have to make sure we double down on our strengths, focusing and winning through innovation, whether it's our refreshers that we launched this summer, whether it is really taking care to deliver those seasonal favorites such as the Christmas trio of holiday beverages, or whether it is sharing our tremendous coffees. At the moment, exquisite Christmas Blend is being shared with our customers there. These are all differentiated from the competition. But so, too, those moments of connection is the thing that has set us apart for so long and will help us win in Canada. It is that moment when a barista connects with their customer and makes their beverage just the way they like it and strengthens our emotional relationship.
Quickly moving on to Latin America, and it's been a record year in Latin America where we've opened more than 100 stores and we've seen healthy sales growth and healthy operating margins. I was reminded recently with our 10th anniversary how long we've been in the markets of Latin America with our partner Alshaya, who is a strategic partner for us in this marketplace. They have now more than 350 stores in Mexico and continue to grow.
At the same time, company-operated market and the market with the biggest potential in South America is Brazil. And in Brazil this year, we opened 25 new stores, almost doubling our portfolio and we see the opportunity in that market alone for several hundred new stores in the coming years. We're really starting to take the opportunity to leverage our experience in the U.S. and increase the speed to market of innovation and the way we think about our developments in the U.S. A great example is with the Starbucks Card and the recently introduced My Starbucks Rewards loyalty program into Mexico, and it's already accounting for 16% of our tender in that market.
At the same time, we are learning the lessons of the past and I think Howard showed a great example with China this morning. We're really strengthening our local leadership, so that we are able to support the growth and champion the growth from within the local marketplace, supporting it with the expertise and experience from the U.S. across the region. We see the opportunity across Mexico, Central America and South America, to open 100 stores in the coming 5 years.
What is most gratifying when you visit is to see countries embrace Starbucks Coffee when they are nations that grow their own coffee and see a whole generation of new coffee drinkers embracing the Starbucks Experience in a way we've done for so long in this part of the world.
Let me talk about the U.S. and I'd like to introduce a couple of people. The first person I'd like to introduce is Chris Carr. Chris is a 6-year partner, and he has many years in operations. He's our recently appointed Executive Vice President for Starbucks stores, retail stores in the U.S., and he was alongside me throughout the transformation of the U.S. business and we worked together for the last 5 years, Chris Carr.
Also here today, and you'll have an opportunity to meet both Chris and Andrew Alfano, who is our Senior Vice President for Northeastern U.S. Andrew is a 13.5-year partner, Andrew Alfano.
And what I wanted to do by highlighting Annie, Chris and Andrew is to share with you that we are really now able to produce great talent to support our future growth. And from within the U.S., we're producing talent to help other geographies and also emerging business units. So it's a very strong focus for us.
Now the U.S. business has never been healthier. It is quite incredible to see the year-on-year performance and its results across the country and to feel confident to share with you that we'll open more than 1,500 stores in the U.S. by 2017. Now our solid comp growth is coming off traffic generation and it's coming off ticket. Our traffic is being helped by many of the things we've done in our stores, increasing our capacity at peak. It's been helped by our My Starbucks Rewards loyalty program. It's been helped by expanding the daypart focus and also by introducing solutions for new need states. The focus has been about how do we improve the quality of experience for our customers, the quality of their beverage and speed of service, all things that really matter and creating it in the right environment with our people.
Now ticket itself has contributed about 1 to 2 percentage points over the last couple of years, and that is -- a very small part of that is price, but it has been about innovation. It has been about selling more food and a greater attach to our beverages. And the 2-year comp has maintained an incredibly healthy mid-teens throughout that period of time.
If you look at the unit volumes, the average unit volumes for our U.S. stores, you can see that we've grown them by more than $200,000 over the last -- since 2010, the last time we were together. And our operating -- our profit contribution at the store level has increased by 380 basis points over the same period of time. And I just to want to make a shout-out for the people who put on the green apron every day because our baristas have done a fantastic job maintaining the quality and improving the experience for the ever-increasing number of customers who come into our stores.
But at the same time we've been increasing our traffic through the stores, we have managed to leverage that and we've seen productivity, that the people we serve at every hour of labor we spend, we've seen that increase year-on-year-on-year. And while it's in a record level, we still see opportunity for improvement in this area.
So people are really important to us, the work we plan for, and at the same time, our portfolio and optimizing our portfolio is critical. And in order to accelerate profitable growth, we have invested in a large number of refurbishments in the last year. We've seen significant improvement where we've done those major renovations. Those are the ones where we don't just close and put a coat of paint on it, but it's ones where we do something significant to increase the capacity, increase the amount of seating, increase or improve the flow, maybe add a patio outside and upgrade the design. We have taken the opportunity and will continue to relocate where stores are at the end of their leases and we've seen where maybe we've had a small old store. And just to reassure Howard, we will not touch Pike Place. We'll keep that one going, the original store. But this is the opportunity taking in line café to maybe a drive-thru and we've seen on average, an improvement of 40% to 70%. And although the number of stores are not significant, the contribution is very positive.
And as I've shared, we see the opportunity to continue to grow the portfolio by more than 1,500 stores in the U.S., company-operated and licensed, that's the net new stores in the next 5 years. I think one of the things we are doing is, we're in this part of our development, is our innovation around design, our flexibility around the type of stores, whether it's a drive-thru, a drive-thru only, a small store, getting much greater flexibility around how we find real estate and how we build out our portfolio. That's the same in licensed stores as well. Many of the things we thought were not possible 5 and 10 years ago, we now know are possible and they're very relevant to the lives of our customers. Now the design is really an important part of the journey for us, at LEED certified integrity, local materials and really enhancing the local environment we operate in. And Arthur Rubinfeld, who's President of our Global Developments Organization, will come and share a bit more later about our real estate.
Now as we build out our stores, we look to innovate, not just for product, but in the way we work with our partners, our customers and our business, and we're using technology and we're using experiences from around the globe. If you look at an opportunity, we always look for ways to strengthen that emotional connection with our customers. And one of the ways we're going to do that this year in spring or in calendar year '13, Q1, we're going to be putting names on cups for our customers. We're going to be putting our partners' names on their aprons. And we're doing this because we want to give the opportunity to strengthen the relationship and improve the emotional connection between the barista and the customer in the moment.
At the same time with technology, it's amazing to think the card, when it was launched, it was a breakthrough. Free Wi-Fi was very timely. And now we're in a situation where not only are people using their iPhones to pay, but Square is on the way. So tremendous amount of innovation relevant to our customers and just, again, further strengthening the relationship we have with our customers and remaining relevant to their daily lives. Adam Brotman, who's our Chief Digital Officer, will talk a little later about what's going on in the digital space at Starbucks.
Howard talked about the acquisitions and we will continue to find ways to strengthen our daypart and our need state, bringing in Evolution fresh to more than 5,000 of our company-operated stores by the end of 2013. The product is fantastic. It's relevant for our customers, it's relevant for their lives.
We've also -- we're experimenting with things like Starbucks Evenings, which is bringing wine, beer and an enhanced food range, warm food offerings such as mac and cheese to a small number of stores at the moment to really test its relevance and how it fits in. Early results, although we're only in 15 stores, have been very encouraging. And as time goes on and we complete that test, we'll share more about our ambitions in that area.
Innovation around coffee and extending our reach. Blonde Roast, last January launched into our stores, those people who like the lighter roast coffee. We've seen refreshers in the summer and that's in the form of VIA, in the form of cans and in the form of handcrafted beverages in our stores. And that was for a whole new need state around refreshment, but refreshments in a different way using green coffee extract, just something that produces natural energy and is unique to the innovation Starbucks can do.
We also, most recently, introduced what seemed impossible until now, which was a single machine for customers to brew their Starbucks Coffee at home. Be it brewed coffee, be it a shot of espresso of Starbucks quality and then make a latte or any of their favorite beverages, and all from one machine. This is significant innovation for a company with a 41-year heritage in coffee.
Now not to be outdone, and Howard talked about food. Food and coffee is gone together. And in many markets around the globe, our food varies. We have a significant business in the U.S. today in food and we have seen very strong growth over the last 4 years. And we have had a lot of innovation in that area. But food today accounts in the U.S. for $1.5 billion. But only 1 in 3 of our customers today is buying food with their beverage. So the opportunity to lead in food the way we've led in coffee for so long is just a fantastic opportunity for today and for our future success. Let's give you a little taste of what La Boulange has to offer.
It is now my great pleasure to invite Monsieur Pascal Rigo, the founder of La Boulange, to the stage. We thought we'd just share a little bit about the story of La Boulange with you and maybe try and anticipate a few of those questions. So maybe, Pascal, tell us about the product we're going to see in the Starbucks stores.
What's exciting is that we are enhancing the food experience at Starbucks, and to do that, we are starting to introduce a new La Boulange recipe and creating a product specifically for Starbucks. The taste and the quality of these products are, of course, homemade and delicious. We developed a mix of products that are sugary and sweet to try to be a different daypart of the day at Starbucks, but also that's affordable for the drive-thru business. There's a big change and that's really, really big and that we are warming every product order, without -- which is key for our business, without impacting the speed of the transaction for it is really fresh from the oven.
So this thing about freshness, how are you going to maintain this, the quality of the product and the integrity of the product right through the store?
Well, it was very, very important for us to learn to build the supply chain that we preserve the taste and the quality of our product. So that's what we have done well, building a fully-frozen supply chain from our supplier all the way to the store, while capturing the taste of those product, the best way possible right when it's finished to be packed at the supplier level and then, we bring it in very innovative packaging all the way to our store. And in addition to that, all over the country, we are, for the first time in the history of Starbucks, we are talking at the same level with the supplier, baker to baker, which is very important and never happened to us within our company. So we are working with them very closely. We are going to their facilities, we are teaching them how to mix, how to scale, how to bake our product. Most importantly, we are teaching them and to understand, really, what we're doing to achieve at Starbucks, and the soul of the product and what we want that to be, what kind of experience we want our customers to be at Starbucks. It's a very, very unique opportunity, and we never have done that before, and we are creating a very strong network of suppliers all over the country. And I'm very, very proud of that.
And what -- we've really tried to crack the code on this, internally, for a very long time now. And with Pascal's skill and capability and also, pragmatism, we've been able to bring this range through innovation around the way we've freezed the products, innovation around how we treat it in-store and also leveraging our existing ovens in stores. So from a partner point of view, it is a really good process, as far as operating goes. So we started with that first store that we saw on the video. We've got 10 stores in San Francisco, where do we got from there?
Right. Such a good response to start with, a great response from the partner and the customer alike. The results are incredibly encouraging. Like Howard said, we're seeing significant lift in our business there. We started with 10 stores in San Francisco last spring, and we are going to -- in the last months, we rolled out some key stores in San Jose. And at the same time that we introduced the product in San Jose, we also introduced the brand of La Boulange and trying to leverage that within the Starbucks stores and its, I mean, overwhelming response from not only our partner but from our customers, we actually are doing well. But it's a midyear rollout and by spring of 2013, we will be in 400 stores in the Bay Area mainly, and 2,500 store by the end of 2013.
That's good news. So when you look forward, ready to expand, but what do you see for the future?
Well, I mean it's an unbelievable opportunity. I mean, as a small baker, to -- very excited to see my products in the hands of what -- over 60 million customers a week. I mean, that's unbelievable and we are going to do it. And as a Starbucks partner, I'm very, very excited about how the company is committed to elevating the food experience in all the Starbucks in America.
60 million is global. We're going to start with the U.S., get it to all 7,000 company-operated stores. Thanks very much, Pascal, for sharing your passion.
Thank you very much.
Pascal will rejoin me here, or will come back on stage later for a Q&A. I'm sure there's lots of questions. The food is fantastic. Our partners are really enjoying and so proud of the food. And so far, customer reaction has been tremendous. Now we know, and I take full responsibility for this, each acquisition and element we add into our stores, we have to take real care that we stay focused on the core. So everything we bring in has to -- we have to find ways to make sure to -- not disrupt the core of our business. You have my commitment on that.
Now we also have, in recent years, and continue to make investments in our business systems and our infrastructure. We've now completed the rollout of our inventory management system. We've completed the rollout of our new points of sale system. We've introduced mobile payments. We've introduced Square as part of that. And we also continue to make enhancements to our lean practices, which have helped build this capacity so well and helped us redo the way we do our work. We also continue to make drive-thru improvements which, again, have provided benefits in a way that we only had aspirations to do 4 years ago. Now our priority in terms of those business systems and processes are really focused on La Boulange, to make sure we introduce those protocols in a very effective way into the stores and also, at the same time, and I talked about the productivity with labor earlier, we're bringing in an automated labor scheduling system which we think will really benefit our partners and provide better coverage for our customers and ultimately, help to support the growth of our stores.
Everything we've done in the last 4 years is about improving the work in the stores. It's helped us with getting the right product into place at the right time. It's improved experience for the customers and ultimately, has supported both our speed and our capacity. And that is both in our stores, and on cafés and in our drive-thru lanes. Partner engagement is absolutely key to this activity and they are very, very active in helping us with continuous improvement, bringing forward ideas through an internal mystarbucksideas.com for our partners. And they are responsible for pulling the work together in our stores every day. We know that if we have a store manager who is, one, strong and capable; but two, if they remain in their stores but that is better as they gets to know the community, they know their team well and they know their business. I'm pleased to share that more than 66% of our store managers have been in their store for 1 or more years, and 36% have been in their store for 2 years or more. They play a critical part in the work in the store and also by getting out into the community and being an active member in that community. Four years ago, when we started the transformation, we brought our managers together, our leaders together in New Orleans, and that helped prepare people for the change that was to come.
Recently, we came together again in Houston and we brought global leaders in, but we focused on store managers and brought all our store managers from the U.S. and Canada. And it was about their leadership skills, it was about investing in them, and it was also sharing with them the responsibility of being a leader at Starbucks. Houston was a tremendously inspiring and uplifting experience for all of us. Let's show a quick video with you.
Hopefully, you get a sense of the energy and passion we have for our business. And it's always been about our people, it's been about our stores and it's about our coffee. But in closing, today, I'd share with you, the Americas business is strong, supported by accelerating profitable growth, a maniacal and disciplined focus on our core and building our talent and capability of people for the future. And we are going to open more than 3,000 stores across the region by 2017. More than half of those will be in the U.S. Thank you for your time this morning. Thank you.
It's now my great pleasure to introduce Adam Brotman, our Chief Digital Officer. Adam?
Good morning. My name is Adam Brotman. I'm a 4-year Starbucks partner, and I'm Starbucks' Chief Digital Officer. This morning, I want to give you an update on what Starbucks is doing across a number of different areas: digital advertising, social media, web and mobile, loyalty and card.
But before I do that, I want to make 2 overarching points. First of all, everything that we're doing and everything that I'm talking about today in the U.S., we are integrating across the globe and across different channels as Howard mentioned. You're going to hear Jeff talk about how we are integrating digital and social and loyalty into our grocery channels. You're going to hear John and Michelle talk about how we're doing that across the globe.
Secondly, I want to point out that there's a lot of other companies doing some, or all, these things. They're doing them well, they're doing them with big numbers. But no other company besides Starbucks is doing these things in combination, the way we're doing them, the size and engagement level that we're doing them with the customer experience and combining these digital platforms the way we are. And I want to explain that to you today.
So let's start with digital advertising. When it comes to banner ads, sponsored posts and social media and paid search, we are able to use the insights and data that we get from our card and loyalty program to be highly targeted and make sure that everything that we're doing in digital advertising is highly relevant. We're even able to use external factors such as weather to integrate that with our own data and make sure that we're incredibly smart about how we're doing digital advertising. And of course, with any digital advertising, what's great about it is you can turn it up, you can turn it down, you can optimize it, you can use predictive modeling. Last year, we took advantage of paid digital advertising to deliver over 7.6 billion paid impressions.
Now turning to social media, we now have over 54 million global Facebook fans. And in the U.S., that number's over 33 million. And here's an amazing statistic, when you combine our fans with just the friends of our fans, that one degree of separation, where all the virility occurs, we have the ability to reach over 94% of the 1 billion users on Facebook, so amazing reach on Facebook.
And we've had similar success in reach on Twitter. Our Twitter feed now has over 3 million followers. It's one of the largest of any brand on Twitter and we are, by far, one of the most engaged, followed and mentioned brands every day on the social network.
Now let's talk for a moment about some of the more important and emerging social networks, Instagram and Pinterest. We've recently launched presences on both of these networks, and what we love about Instagram, for example, is that these networks use authentic or curated images that really give us an ability to build our brand, connect with our customers in a way that's completely unique for Starbucks. And we can do it using these images and show off our love for coffee and the love our customers have for us and the Instamagic that happens in our stores. And when you combine that with the reach, I just mentioned, that we have on Facebook and Twitter, it really works well. It all comes together. And it's working. On Instagram, we already have nearly 1 million followers. We're the largest retail brand on that network, we're the #2 brand, overall, in Instagram. And with Pinterest, we're one of the most followed brands on Pinterest as well.
Now the power of social media is, as you know, is not just about reach and not just about a one-way communication, but it's about interaction. And for a brand like Starbucks that's built on customer engagement and a passion for the brand, interaction equals engagement; and engagement equals virility. And it just -- it all works together very well. And as you know, we can engage directly with our customers on Twitter by @replying; we can Favorite our customers' images on Instagram, besides posting our own; we can join the comment stream on Facebook. And we really get this interaction going on mystarbucksidea.com. Many of you have heard of this "social network meets suggestion box meets blog." We launched it about 4 years ago. It's been very successful for us. We have over 350,000 registered accounts on just this one idea platform alone, and we've implemented over 200 ideas from the platform to date. And it's a great platform for us because we can engage directly with our customers by commenting on their ideas. Our customers get to put up ideas and vote on them and then, we comment. And it's just -- it's a fantastic culmination of everything that we're doing on social.
And now turning to our own experiences. Besides the incredible reach we can achieve with targeted paid digital and the following and engagement we have on social media, we also have an incredibly large audience on our own website and mobile apps. starbucks.com, mystarbucksidea, all the platforms for our mobile apps, the Starbucks Digital Network on our Wi-Fi, which -- where we offer premium content for free, have a huge following, and growing. These own platforms alone are reaching a scale that rivals any large publisher in the world. Last month alone, we had over 50 million visits to our own platforms. That's on top of social, that's on top of paid.
Now let's talk about loyalty. Starbucks has had a very successful run with My Starbucks Rewards and loyalty. We've recently made some improvements, too, which I'm going to talk about. But we are really just getting started with loyalty, integrating it into the channel, growing it international, really making sure our customers are aware of it. So when I mention these numbers, do keep in mind, we literally are just getting started. We have 15 million members of our loyalty program, just under 15 million, 14.6 million members of our loyalty program. 5.5 million of those members have opted then to receive communications from us with an incredibly high, and in fact, I believe, industry-leading open and engagement rate. We have 5 million active members of our loyalty program, and 3 million of those 5 already earned their way to gold status to get the Starbucks Gold Card.
And as I mentioned, we recently made some improvements to the My Starbucks Rewards loyalty program. We made the program better for our customers by allowing them to get faster to get to free reward coupons, 12 stars now instead of 15 stars gets you a free reward coupon. That reward coupon used to be just for beverages, now it's for beverages or any food item, which is a great way for our customers to sample our great new food. And we went completely digital with the program, having your reward coupons loaded right onto your account, right onto your -- on the website, right on your mobile phone. No need for paper coupons, saving us a lot of money in the process making it better for customers. And frankly, with My Starbucks Rewards, it's working for us as well. We've reduced the discount line to the company while making it better for the customer, and we're seeing it explode in growth. We are signing up new members to My Starbucks Rewards loyalty and over nearly 100,000 new members per week. And again, I anticipate that that's going to continue to grow as more and more customers are aware of the improvements we've made in the program, and the value and convenience it brings to them.
And besides the incrementality associated with any loyalty program, any punch card program, our My Starbucks Rewards program is tied to our card program, and that gives us a couple of different advantages. First of all, because it's tied to the card we have the purchase data tied to the unique ID and we get direct data insights and trends right off of a My Starbucks Rewards program. That's one big advantage on top of incrementality that comes from the reward program. The second big advantage is that we have the 5.5 million opted-in, and we can communicate directly, in real-time, with our customers telling them about a new product, a new offer, a new campaign, we can connect with them. We can do it not just on e-mail, which is the primary way today for most companies and for us as well, but also through an inbox in our mobile app and by personalizing our website for them as they log in. So loyalty for us is incredibly powerful, as you can imagine.
And one other thing I'm going to mention about loyalty, it is unprecedented, and Jeff's going to talk more about it later today, is that, with loyalty, we can -- our Starbucks customers later this year, or actually, later this fiscal year, next calendar year, will be able earn My Starbucks Rewards stars for buying Starbucks Coffee in the grocery aisle, really bringing together our loyalty program in the U.S. stores and tying it together with our grocery channel as well.
Now let's talk about the Starbucks Card program. Starbucks card is not only a gift card but I mentioned it doubles as our loyalty card. Load -- $1 load on the Starbucks Card are growing at over 20% per year and those loads are growing at over 90% per year on the digital channels year-over-year. One out of every 10 U.S. adults will receive a Starbucks Card this holiday season.
Here's another amazing stat about our card business. Our card, our prepaid card business accounts for over 25% of our in-store purchase. That means over 1/4 of our in-store purchases are prepaid. And globally, this program has grown to $3 billion a year. And to put that in perspective, on a global scale, if our global card business was a bank, it'd be in the top 50 banks in the world. Now we're not just resting on what we've done with cards so far but we're trying to innovate on it and extend it. We'll talk about mobile payment in a moment, which is a version of extending our card program. But we've innovated in extending the card program by allowing our customers to gift Starbucks Cards right from the website, our website, and right from their mobile app. This e-card form factor is more transformational that you'd first realize. It is this form factor that allows us to take advantage of transaction-driving capabilities and offers, such as the Google Offers deal that we did earlier in the year and the LivingSocial offer that we did just last quarter. The LivingSocial offer is an example of how nimble we can be taking advantage of the digital card feature. We sold $15 million of Starbucks Card in less than 24 hours. It broke a world record. I think it was the Guinness Book of World Records for that particular offer. But more important than that, in 1 day, $15 million of card transactions, it's incremental, those transactions flowed into the stores, as you saw, over the following week and it just shows how important innovation in card is, on top of mobile payments.
So speaking of mobile, let's talk about mobile. Everything I've mentioned so far today: digital advertising, social media, what we're doing on the web, what we're doing with content, loyalty card, they all come together in mobile. It is the fastest-growing platform in the world, obviously, terms of engagement. It offers the most value and convenience. It's right on your person, literally, and so it all comes together and it allows us to turbocharge everything that we're doing across digital. And we couldn't be more excited about how our customers are embracing mobile. Just like loyalty sign-ups, we're seeing hundreds of thousands of downloads per week of our apps. We have 7 million weekly active users of our apps, 2 million -- actually, over 2 million of those are doing mobile payment transactions. So we're seeing 2.1 million, 2.2 million mobile payment transactions per week. We're at well over 100 million mobile payment transactions since we launched the program at the beginning of the last calendar year. And all of those transactions, all of that engagement, everything we're doing on mobile, including sign-ups is accelerating. And don't forget, mobile payment speeds the line in our stores, so it has a direct impact on transaction flow; and mobile payment has reload built into it, which is growing 90% year-over-year and those taking those reloads out of the line also speeds the line as well.
Now let's talk about the future of mobile for a moment. Mobile payment and all this embracing our customers have done around mobile is not a fluke. We don't believe this is bad. We actually think that it is a sign of things to come. And while our Starbucks customers may not use the Starbucks app to pay for everything in the world, we believe that mobile payment is going to become a predominant method of retail payment in the years to come and it's going to happen faster than everybody realizes. So we realize that we had an opportunity to take advantage of our lead as the leading retailer in mobile payment to find a partner that was going to develop a vision for an open-loop mobile wallet because we knew at some point we would have to invite one or more other open-loop mobile wallets into our store to complement our mobile card app. And we've looked for a partner that not only shared our vision for what was going to happen in mobile, our passion, our customer values and our focus on customer experience, but we looked around for one that was doing it the way that we wanted to do it that was centered on customer engagement.
And so we've looked at -- we talked to many, many different digital companies, mobile companies, everyone in the mobile payment space, and we realized that the company that was doing it the best in our opinion was Square.
Square is -- you guys know about Square. Square was founded by Jack Dorsey, the cofounder of Twitter. They are already before we even partnered with them on a mobile wallet side, they are the largest and leading mobile payment acceptance app in terms of a reader for small retailers and merchants to be able to accept credit and debit card payments in their stores, processing a $10 billion annualized rate. And when we look at what we are doing in terms of open-loop mobile wallet with payments, name and space, and all the elegance and vision that Jack Dorsey and his team in Square brought to the mobile payment accepting side, they were bringing it to the consumer wallet side, we knew that we wanted to be a partner with them. And we wanted to do it in a way that would benefit our customers, where we could co-author our future in mobile payments with them to make sure that everything that we wanted to do across all these digital areas, we can bring to life on their Square Wallet for the benefit of our business and our customers, but also help co-author the future of mobile payments with them.
So we've made an investment in Square. We launched Starbucks onto their Square Wallet directory in less than 3 months after signing the deal and we're nearly complete in terms of having Square, data processor of all of our U.S. credit and debit card payments in our U.S. stores, saving us on interchange fees as well. But you can see that digital directly drives our core business in all these different ways.
So let's go back to the first half of the presentation. Our ability to reach a material number of customers across digital advertising, social media, web and mobile is we have a combination of both size, reach, engagement, customer experience and virility that is unmatched. But more importantly, for the business, when you put all these things together, it gives us an ability to drive down our cost of marketing for our customer and be far less reliant on traditional marketing and traditional pay marketing. Secondly, on the right side of the spectrum, loyalty and Starbucks Card. The fact that the Starbucks Card and loyalty card, our loyalty program, are tied together is not a coincidence.
I mentioned earlier, this is what gives us vital data, insights and better to understand trends and what's relevant for us and moves the needles for us. As card has trusted 25% of in-store purchases and loyalty is over 20% of our in-store tender, we are seeing the advantage to the company, the incrementality and the insights accelerate across this side of the spectrum.
And as a result of how we're combining all of these programs, the original overarching point I made, we are becoming less and less reliant on traditional paid advertising, digital or non-digital, and we're developing a direct realtime relationship with our customers across all these digital platforms.
And as I mentioned, it's not any one of them, it's a combination that gives you what I think, and I hope you can see, an ability like no other consumer brand or retail company to have a digital driver for our business.
Thanks for your time, and I'm going to ask Cliff and the team to come up for Q&A.
Thanks, Adam. So ladies and gentlemen, if we can answer any questions for you, be more than honored. If you would help us out, we do have people roaming with mics. If I can pick around to point to, swing, get a mic to you, and then we're going to start with the gentleman over here. If you could share your name and your company, it would be of great assistance to us as well. See what we can answer for you. Sir?
David Palmer - UBS Investment Bank, Research Division
David Palmer, UBS...
David, it's not switched on. Can we have that mic up? David, try again.
David Palmer - UBS Investment Bank, Research Division
Shout, David, we'll hear you.
David Palmer - UBS Investment Bank, Research Division
Okay, I'll shout it out. All right. [indiscernible] Do you feel like -- this might be more a question for Howard. Do you feel like you can manage what you have now? I think we will likely, in 2 years time, when we look back on this stable or very close to the stable of brands, or perhaps we will have a few more sitting here still on prowl, looking to plug maybe some holes left in the portfolio?
Thank you, David. It's a question about managing the portfolio brands within our business and whether that stable is going to change. Let me talk for the moment, David, if I may, about within the store environment, and I know Jeff Hansberry will talk about emerging brands with his responsibility later. I think the first thing around the brands coming into our stores whether it's Evolution Fresh, whether it's La Boulange or whether it's brands that we have developed like VIA, then we're really making sure that they're relevant to the lives of our customer. We're making very conscious decision as to whether we develop internally and do we have a heritage and expertise? And an example is with coffee and VIA, it is Starbucks VIA, it is Starbucks Verismo system. So our coffee heritage gives us strength there. With Evolution Fresh, we have acquired and we've acquired the capabilities, would they come with Evolution Fresh, and that brand fits in. So it's going to fit the lifestyle, it's got to enhance the relationship we have with our customers and it's also, from an operational point of view, it's got to fit in seamlessly. And our work with Pascal has been that, his passion as a baker. We don't wish to dilute any of the integrity of the product. But we have worked together and with other people in our supply chain to make sure that we can: one, manage it; and two, make sure that when he tastes the product in our stores, it's got the integrity that we started with. So it's a very disciplined approach and we'll make sure we don't distort or sacrifice the core of the business. So thank you, David. And I'll ask Jeff later to talk about the stable of brands. At the back here, and I'll come to you soon in the front.
Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division
All right. Sara Senatore from Bernstein. I wanted to actually ask also about the new brands from a different angle. You talked about the importance of supply chain with La Boulange and how critical it is to have the frozen supply chain. Can you just talk about the operational complexity you might be introducing into the business? Are there any sort of CapEx requirements, new ovens you need? I guess, ultimately, the products sound great, but you have to execute it really well and to keep it in the spirit of the product. So that and maybe also Evolution Fresh as well.
Okay. Let's try and talk about that. I think the first thing to say, and building off a lot of the work Jeff has been doing, building his -- we described as a superhighway for taking products to market. We are building not an infrastructure just to deliver Evolution Fresh juice or indeed frozen La Boulange products to our stores, we're trying to build the capability and anticipate the future of our supply chain, having the ability to deliver ambiance chilled or frozen. So we see that as an investment for the long term. We're obviously leading that and we're working with our distribution providers and building that into the capability for the long term. So I think, that side, it is about infrastructure capabilities we can anticipate for the future. If I go into the store, maybe you want to talk about how we treat the La Boulange product because that is pretty critical.
Well, I mean, once again it was very important for us to be able to warm these product. Because it's not only to have a great product, but to deliver it in the best way to deliver to our customer the way we believe they actually showcase this product, and we believe it is warm. So we recon-figurate, we reassign the premium to the store level, we introduced a new warming system and warming protocol that are kind of unique. We are also certain that we need to make it very easy and introduce to our store managers, so we designed new cartridges, color coded, that are very easy for them to use at the store level. We are also what we call accelerated thawing process, which allowed them to get products from the freezer to the store in a very, very good quality steps in a very short period of time. We have entered key to warming for very critical and very busy time of the day. I mean, we walk in every stages from the supplier to the store manager calling you. So now we are going to deliver the products to the customer, and it's working.
So Sara, we have put a freezer, or we haven't already got a freezer in the back of our house, that is an investment. Front of house, which is our ovens, our existing turboshaft ovens, and the great news is the capability of those ovens working with Pascal enables us to deliver the fresh-tasting product that we want for every single customer. Investment in back of the house freezers will pay for itself in a very straightforward way by reducing wastage and controlling inventory. Because as you imagine, on a daily basis, demands for an individual product go up and down, now we're able to have stock on hand. I would say the other thing is, when we're talking about freezers, Pascal has been very clear that we're treating frozen product like fresh. This is a way to freeze it at it freshest, deliver it to our stores and manage it in a very short turnover time. So that's a big help for us and in terms of our capital, everything that we're investing in this, is within our forecast [indiscernible]. So thank you, Sara.
Over 2 questions. Let's go to the gentleman over here, just this gentleman here. Oh, I'm sorry, I thought there's a gentleman on the side there, no? Okay, yes. Please, sir. And then come on here at the front.
Jeffrey Andrew Bernstein - Barclays Capital, Research Division
Jeff Bernstein from Barclays. Cliff, I was hoping to get perhaps your perspective. Howard made a comment earlier about CPG putting a pedal to the metal. And you said it before, one day having a CPG rival the U.S. retail business. So it would be interesting to get your perspective, being that you're on the retail side of the things and maybe Jeff later. But I'm just wondering how you get comfortable now in the very early stages that CPG is not or doesn't have the risk one day is degrading the in-store retail experience? We've seen other brands go at it with their very strong retail presence and then go in the food, drug and mass channel, and all of a sudden, the product is everywhere. Just wondering how you get comfortable and manage that as it goes into that kind of food, drug and mass channel that over time you don't run into that kind of risk.
That's a very good question. Certainly from the challenge perspective that CPG will be as big as our U.S. retailer, hence, a really exciting future potential. And obviously, I'm going to work as hard as I can to make that take as long. We're going to go as fast as we can. But in terms of the brand and the integrity and not degrading it, we recognized from a customer point of view, they want to access Starbucks Coffee. Originally, we started with our own company-operated stores, we extended into license environments and then we extended to Food service and we extended into the grocery. And the customer has a relationship with the brand that we need to keep putting deposits in reservoir of trust with them and make sure that we maintain that integrity. Jeff and myself from a U.S. perspective and quite frankly with my colleagues around the globe, we work very closely to get this one voice approach after that the third leg of the store, which is the digital assets, to make sure that it is a seamless experience for the customer, and I think you'll see that grow over time. So that is our -- it's a work to keeping our discipline.
Thank you. This gentleman in front. Sir? Do you want a microphone here?
Yes. Krim Delko, Orange Capital Partners. I have a question concerning your positioning with regards to health and sustainability. It seems to me that Starbucks is a bit confusing at that front. Sometimes you deliver good tasting food with high calories, lots of fat and sugar, you're like a McDonalds. Sometimes, you're like a Whole Foods where you're helping sustainable and local. I struggle a little bit as a customer, I'm a bit -- not concerned, but I would like to hear as an investor where do you stand on that from? Is it going to be more clarity in the future how Starbucks is positioned with regards to health sustainability of sourcing and et cetera?
Thank you. That is a -- it's a really good question. And Jeff will talk about the balance of the health brands later. But let me just talk from a Starbucks point of view. It's always been about ethical sourcing our coffees, it has been respecting the environment. And sometimes those things come quickly because we control it, and sometimes we have to work with other people in the industry, other people, local authorities around the globe. But our commitment is to bring in ethically-sourced product. Our commitment is to bring in things that suits our customers life and are relevant for the times we live in. What we also recognize is a customer wants a choice, a customer, occasionally most of us, have treats at sometime. And it's trying to get that balance where if somebody wants a healthy product, and I think our Evolution Fresh juice is a great example of how we're upgrading that product, the work Pascal has done, and you commented, too, about the calories, but it's the quality of the ingredients I've been really amazed, the heath of those products and how low the calories are. Maybe talk about how we keep that down and achieve that fantastic product.
Absolutely. I think ingredient's quality it has -- I mean, that works together while reduce a little bit the size of the product itself, because I think we don't need to eat that much so in the morning. We're also looking at less sugar in the product or so and all the product we have introduced lately had less sugar than the one we had before. We are also looking, and that's going to take a little bit more time of outsourcing the front ingredient and better ingredients. At La Boulange we are used to work with farmers directly from Utah. And so we are going to try to expand this relationship with farmer and wheat grower and be more relevant in this sector.
And just a final comment, I'd say is LEED-certified stores are using local materials using leading energy practices. It's a journey, but we're on that journey. So thank you for the question. It's great.
How are you doing?
John W. Ivankoe - JP Morgan Chase & Co, Research Division
John Ivankoe at JPMorgan. Obviously the U.S. as well in the peak toward North -- the Americas, I should say, is well on the peak margins at this point, and you mentioned automated labor scheduling. So just if you can -- you can go into that a little bit? Maybe it's just the productivity or serving the customer better. But I was also curious about Square and living. If I heard it right, you're credit processing 2 Square. How big an opportunity that maybe could be significant? You said 25% of the transaction are coming on the card, and some way, how much are coming on a non-Starbucks card, Visa, MasterCard, American Express? What have you, and how big of a margin opportunity it might be? Either one of those 2 initiatives.
Maybe it's about Square?
Yes, there is savings on the interchange fees by moving from to Square from our previous processor into all the credit and debit card processing. We're not quantifying the exact amount right now, but it's a real number and it is going to grow as more and more of our customers pay with mobile. In fact, we are rapidly approaching almost 10% of our in-store transaction using mobile. Primarily on our card, we're just getting started with Square Wallet and our ability to use those platforms as an engagement vehicle, not just an energy and savings and payment vehicle are the keys, so they're both engagement and savings. So we are seeing that and it's too early -- we just launched Square, it's too early to comment on the adoption. The customer response has been fantastic, we're really happy with the adoption of the Square Wallet and we're seeing that as a very complementary payment source to the Starbucks Card and Starbucks Card Mobile.
Hopefully that helps. Yes, so labor scheduling, again, it is a long process because we have to -- we're changing the system that we work with very effectively for the last 20 years and we are now trying to update that and take in all the additional complexities state-by-state, payment requirements, hours recording. So this is a journey for us. I don't see it being a quick hit. But I see it over time really underpinning our ability to continue our improvement on productivity, our improvement on the quality of work for our partners because we want to retain them and also making sure we build that capacity for the customer. So it's a longer term, but like our point-of-sale, electronic point-of-sale system and like inventory management, these are underpinning to allow us to continue to grow.
Thank you. Can we have a last question. But if we have unanswered questions, we are around in the breaks, we are around lunchtime and we'll pick those up.
Keith Siegner - Crédit Suisse AG, Research Division
And it's Keith Siegner from Crédit Suisse. So Cliff, you put up a slide that showed the store level margins over the last couple of years, the expansion in that margin, and traffic has obviously been great. But this, like you said, it has been against investments and other future sales initiatives and against commodity costs headwinds. As you laid out, La Boulange, Evolution Fresh, Square, potential coffee cost deflation, these items now become somewhat of a tailwind. How do you think about that U.S. store level margin over the next couple of years? Is there a level of which above that you reinvest, like are we at the level you'd like it to be? How should we think about that U.S. store level margin for the next couple of years?
Thank you, Keith. Well, we've got a commitment on margin within existing stores that continue to grow. We're also now starting to really -- we built the pipeline and we'll continue to build the pipeline for new stores. So it will be a balance of continuing to grow through new introductions and increase both ticket and transaction, at the same time, looking at the portfolio holistically. I'm sure as the top end starts to mature in throughput, it'll be the innovation that will be ticket that adds to that opportunity. So we'll see that there. When you have the portfolio of 7,000 company-operated stores, there is always opportunities to improve as stores get into their first year anniversary and second year anniversary, they will contribute disproportionately to that comp growth. So I'm not going to call out any specifics, but we still see opportunity the existing stores to grow their margin as we expand the footprint and start to grow our stores. So we're still committed to doing both of those in the coming years. Howard? Yes, you need to go back into the...
Howard D. Schultz
The question about CPG and growing CPG with regard to any dilution, with regards to the equity of the brand. Bear in mind that we have been in the CPG business for over a decade. This is not new for us. What's new is that we are now in control of our own destiny. I recall, maybe 15 years ago, when we decided to put Starbucks Coffee in Costco and it was an outcry from the media, some people from the street that, that would be a dilutive decision to the equity of the brand. And I think we learned a valuable lesson there and that was that we had an opportunity to introduce tens of thousands of people to Starbucks Coffee through that channel of distribution and that customer base. I can absolutely assure everyone in this room that the extent in which we want to grow the CPG business is not in any way to make a decision to do things either in new categories or new channels that would be brand dilutive. For 41 years, we have built one of the most admired brands in the world, we're not going to allow CPG to dilute the brand just because we could get access to revenue. It's going to be highly disciplined and it's going to be accretive to our retail business, I think it's very important. The second thing is about the question about food. We have to give our customers a choice and we have to understand something very important. There are many different need states that people have during the day. But we can't be in a situation where we're dictating food or categories to our customers, we have to offer choice. I think in the future, you're going to see more SKUs devoted to healthier alternatives, but our intent is to not to take away those things that are indulgent. And I think in all fairness to put McDonald's in the same sentence as Starbucks, I just can't allow that. I think it's inappropriate and not respectful. Thank you.
Thank you, Howard. That should close the Q&A session. JoAnn, I know you've got something to...
A couple of things. I just want to follow-up, Keith, on your question about margin expansion. And as Cliff was talking about, and I'm sure you've heard Terry talk many times, we have a nice healthy margin in the U.S., love to expand it further. We also have an opportunity to invest back into the business. So rather than expand that margin out, we may choose to reinvest in more labor to get more capacity through that 4-walled block. So keep that in mind, too, it's not that we're going to suppress margin perfectly, but we have options, which is a great thing to have.
We're breaking for Q&A now. It's a 15-minute or -- excuse me, for our break, 15 minutes. Our respect to all on the webcast, so try to get back here a little bit before 15 minutes so we can start right on time. And please enjoy the pastries and the juice during your breaks and view the displays. Thank you.
Thank you. I'll end this first.
Jeffery J. Hansberry
I'm Jeff Hansberry. I lead the Channel Development and Emerging Brands business for Starbucks. I've been a partner for the last 2.5 years. And it's my privilege to share with you this morning the progress that we're making in Channel Development.
Channel Development was created with the purpose of serving Starbucks customers across categories, channels and countries, across premium categories like coffee, tea and juices, across channels from Starbucks-licensed stores, all the way to the ultimate in convenience with quick-serve restaurants, convenience stores and vending and everything in between the countries with the potential to reach up to the 61 countries where Starbucks has a retail presence.
And clearly, this is a big opportunity. In fact, it is a massive opportunity. And we believe that over time we will rival the size of our retail business in channel development.
And today, I'm pleased to report we're already well on our way.
Since the last time we met in 2010, we took our Packaged Coffee business back and created a direct model. And during that process, actually grew share in the first year. Less than 1 in 10 companies are actually able to do that, and that's something that we were able to successfully do.
Beyond that, we've extended our lead in the premium coffee category. We have extended our footprint to reach more than 1 billion people across the globe and we've created capability to deliver across categories, channels and countries, and we're building the muscle and momentum towards expanding beyond the U.S.
We have created a $1.3 billion business. It is now the second-largest business unit of Starbucks that has grown 3x faster than, and delivers profit margins that are 80% margin higher than our company average. And we're just getting started.
In terms of our focus areas, from a category point of view, we're focusing in 3 major areas. First, always first, coffee. It is and always will be at the center of everything we do. It's a $50 billion category with tremendous growth opportunity in the channel space. Second, the tea category. It is the second-largest category in terms of consumption, only behind water. The $40 billion business today that is ripe for innovation. And we're very excited about the tea opportunity, and I'll talk more about that today.
And third, and equally exciting, is the health and wellness space. It's a $50 billion opportunity, and we've we just began to scratch the surface with our acquisition of Evolution Fresh.
In the coffee space, let's talk about premium single cup. It is an $8 billion fast-growing segment that is transforming the coffee category. And as we've shared before, we will lead in this important space. And since the last time we were together, we have strengthened and introduced 3 discrete platforms that create a suite of single cup solutions that are unrivaled by anyone in the world, and it will continue to grow and take us on this path towards leadership.
In fact, since October of 2011, we have grown our share in the premium single cup space by 2.5x. So we are on the path. This is a category that's fast growing, and we are growing faster than the category and building share in this important space. And again, we're just getting started.
We've done it with VIA, we've done it with K-Cups, and most recently, the introduction of our first single cup platform, the Verismo system.
On VIA, we continue to deliver growth. VIA is our platform that delivers great instant coffee anywhere at any time. And it's the first brand that leverage our blueprint for growth.
In 2009 and 2010, we launched the brand with the VIA challenge in store where we delivered millions of VIA samples to Starbucks customers to introduce them to this great breakthrough product.
Since that time, we've created a nearly $300 million business across 14 countries with 80,000 points of distribution. We've continued to innovate with new flavors like pumpkin spice, peppermint mocha, VIA Refreshers. And in 2013, we'll be announcing new, big exciting innovations on VIA that will continue to drive growth. And in channels alone in 2012, we grew the VIA business by 45%, and there's a lot more room to grow.
Beyond VIA, K-Cup. In the brewed space, it's the largest brewed single cup platform. Customer adoption has been strong. In just our first 11 months on the K-Cup platform, we sold nearly 500 million cups. And recently, we achieved a market share of 16.3% in that space. And we expect to continue to grow share. We'll be introducing new SKUs, we'll also be working closely with customers on shopper-relevant programs to continue to drive share in this space. And I want to reiterate today, importantly, our ambition toward creating a billion-dollar business is as strong as it has ever been. We continue to see very strong growth in the K-Cup space and we're going to continue to drive the Starbucks brand on K-Cups in North America.
Beyond K-Cup, very exciting the introduction of the Verismo platform. For decades, the hallmark of Starbucks experience has been perfectly-handcrafted espresso beverages. For the first time ever, Verismo makes Starbucks quality beverages espresso, brewed coffee, and very importantly, Starbucks-quality lattes all at home, all with a touch of a button through 2 very important innovations. One, a machine that delivers both high and low pressure; and two, great milk innovation, leveraging on everything we learn from VIA. And all the work that we've been doing over a number of years brought us to the point we can deliver a great real milk solution and at the touch of a button for our customers.
It's been called a game changer and it's been embraced by some of the world's leading specialty retailers. We've got very strong in-store display support from the likes of Williams-Sonoma, Sur La Table, and even Harrods of the U.K., who's gotten prominent catalog featured holiday features and aggressive demonstration support. The platform is now still in nearly 2,000 specialty retail stores and over 4,000 Starbucks stores.
And we will reach in our first year nearly 1 million customers with high-quality Starbucks latte and brewed coffee samples across 10,000 demonstrations, many of which delivered by passionate Starbucks partners. Green Aprons in places like Williams-Sonoma and Sur La Table and your local Starbucks store talking about the benefits of these platform that brings us all together, all in one platform for the first time ever. To this point, our customers have to choose. They either had to choose a brewed single cup platform or an espresso single cup platform. Verismo brings it all together for the first time.
Beyond demonstrations, we're speaking to customers through great advertising for this in our unique Starbucks voice. Let's take a look.
Jeffery J. Hansberry
As we said before we intend to lead the support space. Verismo is our next and very big step in that direction. What you see in the marketplace today is just the beginning. We've mapped out an entire pipeline, a multiyear pipeline of machine innovation and product innovation that will make this the leading platform in the single cup space over time to complement what we're already doing and building in VIA and in the K-Cup platform.
Beyond single cup, of course, we continue to be committed to building our base roast and ground business. We introduced Blonde Roast last year to address for the 40-plus percent premium coffee drinkers who prefer lighter roast, and we've gotten off to a very, very good start.
In fact, 78% of the sales in channels of Blonde Roast are incremental for the Starbucks franchise. That speaks volumes to the need and the opportunity and the growth that Blonde Roast represents for us.
And as we go forward, in calendar Q1, we will launch our largest ever cross channel demo program to reach nearly 6 million customers with fresh brewed Blonde Roast samples. So 6 million customers, 6 million targeted customers who have the chance to try first hand a fresh brewed sample of Blonde Roast. This will help to continue to build our share and our business in the roasted brown coffee space.
Beyond roast and ground, our ready-to-drink business. We're making again very good progress in this space. This business grew in 2012 by more than 20% and we saw growth across all segments, whether it was bottled Frappuccino, energy coffee, double shot. All segments grew, and grew significantly.
The big news in 2012, the introduction of Refreshers. Refreshers leverages green coffee extract. It fits right in our wheelhouse, it's what we do, it's all about green coffee. It leverages green coffee extract to provide a refreshing energy drink. It puts us squarely in the $8 billion energy space and provides our customers and all customers with a natural alternative to other energy drinks that are available.
We got off to a very good start in 2012 with cross channel sampling with a handcrafted offer in retail stores, as well as a ready-to-drink offer down the aisle. But importantly, we're just getting started. New flavor innovation, new markets, new programs in 2013 will build on what we already did in 2012 to propel this platform forward.
Beyond Refreshers, new innovation in the RTD space will continue to propel growth in this business that from a systems sales standpoint is already more than $1 billion. So we're very excited about what's happening in our RTD business.
Beyond RTD, our International business. Since we spoke in 2010, we have nearly doubled the number of countries to 20 and increased our distribution points to well over 100,000.
Now that we've built our U.S. organization, we're ready to accelerate our international expansion and we expect to, again, double the business by 2015. That means doubling countries, more than doubling points of distribution, delivering significant growth internationally in places like China, India and other key markets around the world. This will be a significant growth area in the channels business going forward.
To round out coffee, Seattle's Best. It's a growing business and we have never been clearer on what the role of SBC is going forward.
SBC takes us to places that we would not want to take the Starbucks brand. I think there was a question earlier around how will you continue to grow in channels and still maintain the heritage and elegance of the Starbucks experience? We'll do it in several ways. One of those ways will be leveraging the Seattle's Best brand. We've identified a specific target customer and specific channels where we want to play with SBC. The brand plays well in places like quick-serve restaurants, convenience stores and a vending relationship with Coinstar that will result in thousands of vending machines across the U.S. selling Seattle's Best Coffee.
We're building great partnerships with partners like Burger King, Subway. I mentioned Coinstar and convenience retailers like Chevron Extra Mile to build impressions on the brand and build the brand overall. So we're making very good progress in the coffee space and there's more to come.
Beyond coffee, tea, a $40 billion category. $40 billion category that's growing globally in the double digits and a category that is ripe for innovation. While we have built a $1.4 billion systems sales business with the Tazo brand, there is still significant upside for Starbucks in this category.
To that end, our Tazo team has repositioned the brand from products to packaging to a beautiful first of its kind retail expression.
Let's take a look at a short video.
Jeffery J. Hansberry
Hopefully that video gives you some sense as to what we've created with the Tazo store. It is a full-on sensory experience sight, smell, touch. You discover something about tea and the rich heritage and really beautiful tea history that exists. Since opening this store at University Village in Seattle last month, we've exceeded our customer expectations and our own expectations. From a handcrafted standpoint, sales are exceeding other tea retail concepts that we have studied by a wide margin. And this Tazo store will serve as a learning lab on beverage innovation that we can reapply as we extend our Teavana handcrafted beverage platform.
Beyond the store, we've elevated our packaged tea to extend our leadership position in super-premium tea. The new packaging helps customers navigate tea by type and benefit. This makes shopping easier than ever. And this new packaging will roll out across North America in calendar Q1.
With regard to Teavana, we're very excited to be closing on this transaction by the end of this calendar year. Teavana has built a great business over the last 15 years. And if you've had a chance to spend time in their stores, you can see firsthand the artistry that exist and the expertise and the passion that exist in tea. This is a company that has true tea authority. They understand tea. They're great merchants of tea and they've also built some fantastic retail stores.
Combining Teavana's strength with our own capabilities in creating handcrafted beverages, in leveraging our real estate knowledge and expertise. In leveraging what we know and what we can do from a design point of view, this brings together 2 great sets of capabilities that we will use to create an unparalleled tea experience in the U.S. and abroad.
We'll grow Teavana through multiple axes, existing mall stores, innovative beverage-forward neighborhood urban stores and over time, a selection of handcrafted beverages in Starbucks retail stores. At the same time, we will continue to invest in building our Tazo brand. Our approach to tea is a dual-brand strategy and over time, we will reinvent and elevate tea in the same way that Starbucks reinvented and elevated coffee a few decades ago.
Moving on to health and wellness. Evolution Fresh is leading the development of the $3.4 billion cold-crafted juice category. For those of you who may not be familiar with Evolution Fresh, this is a true juicery. They crack, peel and press fresh fruits and vegetables every day. And we never use heat, we use pressure. What pressure does is it preserves the quality of the juice, it preserves the taste, the enzymes, the nutrition. What Evolution Fresh allows us to do is to take fresh, pressed, quality juice and make it accessible to people everywhere. Whether it's in your local Starbucks store or your local natural food store or your local premium grocery store, Evolution Fresh is providing great quality vegetable and fruit juice. In fact, every 15.2-ounce bottle that you see up there has 2 to 3 pounds of the nutrition of fruits and vegetables in it. So it's nutritionally dense, really delicious, really good for you juice.
Now since, we acquired the brand, we've strengthened the brand's positioning overall. We've added new packaging, new advertising and we've begun to roll it out across the U.S. in both Starbucks retail stores and natural and premium grocery stores in parallel. We're now in 2,200 Starbucks retail stores, in nearly 2,000 grocery and natural food stores and we're seeing growth on the business in both places.
Having the brand in both places allows us to start to bring the blueprint for growth to life where we can sample the brand and create awareness in both places at the same time. And by the end of this year, by the end of 2013, the brand will be available in about 5,000 Starbucks retail stores. And again, importantly, we're just getting started. There's new product innovation on the core and innovation more broadly against Evolution and the opportunities it presents. So again, very, very exciting.
One of the questions before the break was around do you have the capabilities to deliver against this fantastic brand portfolio that you're building? And my answer to that question is a resounding yes. Let me explain. From a capability standpoint, we are building a superhighway where we can take the brands that Starbucks curates and bring them to our customers beyond the third place. And it's much bigger than what we traditionally would define as CPG. We define it as channels because it goes beyond CPG. It reaches to the natural channel, it reaches to the specialty channel, it reaches to industries beyond the food, drug, mass and club space that we typically think of when we think of CPG. And over the last 2 years, we've built a team of 600-plus partners who are passionate and dedicated toward building this business.
Early on, we sourced talent from places like Procter & Gamble, Unilever, KC, Campbells and other leading CPG companies. These talented leaders have combined the expertise that they've developed at those companies with the passion and love that is Starbucks to create something new, unique and different, to be ambassadors and advocates for building this brand in a Starbucks way.
I just like to take a moment to introduce you all to one of my partners, Chris Bruzzo. Chris, would you stand up for a minute?
Chris, no don't sit down yet. Chris is a 6-year partner with Starbucks. He originally came to us, if I may, from Amazon. But deep experience in brand marketing, deep experience in digital, deep experience in e-commerce and a deep understanding of the Starbucks retail environment. Chris is leading our marketing efforts across the channels to ensure that we thread everything from a blueprint for growth standpoint with his understanding of Starbucks and his understanding of marketing, to help us bring the blueprint for growth to life. Thanks, Chris. Thank you.
In terms of the capabilities, we are starting to be recognized for what we're building in the channel space. Some of the recognition that is coming: we've been named category captain in several major CPG retailers in the U.S. That's remarkable for a category management organization that is less than 2 years old. We've also been recognized by getting the cover, this last month, of Shopper Marketing magazine. This is our shopper marketing team and we've got dedicated shopper marketing resources that are sitting co-located with each of our key customers, taking unique insights from the customer and their shopper and combining it with what we know about our customers from Starbucks, to create unique programs that build share for the brand, several other innovations that we're leading.
The Starbucks signature aisle and to the question around, does moving into channels and building a CPG business degrade the Starbucks Experience? To that I would say, with signature aisle, a definitive no. In fact, the opposite is happening. We're working closely with our customers, understanding their shoppers and building unique solutions down the aisle that elevate the brand, that elevate the customer. And in this case, the Starbucks signature aisle, we've tested it in 2012 and in places where the Starbucks signature aisle exists, we see 2 to 3x sales lift versus those stores that do not have the signature aisle. And it quantitatively elevates our brand and elevates the customer who has this in their store. We'll be rolling out hundreds of Starbucks signature aisle stores in select grocery stores in the U.S. in 2013. We have it actually in the lobby. Please make sure you check it out before you leave.
One of our greatest assets and a key element, in fact, it's arguably the key element that drives the magic of the Starbucks Experience, are our baristas. There are 200,000 of these special partners around the world and they make the magic that happens at Starbucks every day. Our ambassador program unlocks their passion and their knowledge and allows them to speak to our customers beyond the third place. Today with our ambassador program, we have Starbucks baristas demonstrating Verismo machines in places like Williams-Sonoma and Sur La Table. We have Starbucks baristas acting as ambassadors, demo-ing our coffees in signature aisle stores and other premium grocery stores. We have ambassadors who are calling on grocery managers in some of the best grocery stores in test right now, to share their coffee passion and their coffee knowledge, to help elevate the brand and influence how our brand shows up in those stores. This is a big, big idea. It's a transformational idea. We've got baristas in walking distance to the 5,000 plus best, best coffee selling grocery stores across the U.S. We're beginning to leverage that.
And perhaps the biggest idea of all, again, in the spirit for the blueprint for growth, is the My Starbucks Reward program. It's taken us a while, but with Adam Brotman and his team, we have figured out how to allow our customers to earn Starbucks stars when they buy packaged coffee in their local grocery stores. So very soon, you'll be able to go to your local grocery store, buy a bag of Starbucks coffee and earn a star. What that means and what that allows that, that increases loyalty to our brand for our customers outside of our stores. And at the same time, it helps to drive trips back to our stores. It also allows to communicate with our customers in different ways, in different points of their day and for different occasions. It is a loyalty builder, it is a very, very big idea that will take our blueprint for growth to the next level. And we're really, really excited to roll this out in the summer of 2013.
As Howard said earlier, we shared with you 2 years ago the blueprint for growth. We unveiled the blueprint for growth. And at that time, it was an idea, a very exciting idea. It's no longer an idea. It's a reality. We're bringing it to life across channels, categories and countries. And while we've gotten off to a really good start, we've only begun to scratch the surface. There is significant upside in this model. There are other unlocks that we are working on to leverage the blueprint for growth, to leverage the passion and the loyalty that our customers have to the brand, to continue to build and strengthen our capabilities to serve our customers better.
We are on a great journey. I'll go as far as to say we will build the next growth engine for Starbucks, and I look forward to keeping you up-to-date as we head on that journey towards building the business that will one day rival the size of our Starbucks retail business. Thank you very much.
So, JoAnn, if you going to help me with Q&A?
I'll give it a try.
Jeffery J. Hansberry
Okay. Right on.
I'll say the tough part. We have 10 minutes for Q&A. And we ask that you keep your questions specific to channel development and emerging brands so Jeff can answer those. And if you have general questions, later we have the more general Q&A at the end of the day.
Jeffery J. Hansberry
John S. Glass - Morgan Stanley, Research Division
It's John Glass from Morgan Stanley. If you can just give us just a candid assessment of how you think Verismo's done to date. I know that the holiday season's still coming up. But if you look at the reviews online, I'd say they're mixed. What is your view on what's right and wrong with it? And that the pricing, the dollar price point, is high relative to the competition for certain espressos. Is that the right price point? If it stays that or was that just the starting price point, maybe it comes down from here.
Jeffery J. Hansberry
Yes, so question on Verismo, thank you for the question. I think we're making very good progress. We're inline with our expectations. We are building this thing the right way. If you look at how some other models have been launched historically, going very fast into channels more broadly, we don't think that's the right way. We think we have the right pricing architecture, we think we offer our customers the right value and we think we're making progress, well, we are making progress and we're inline with our expectations. And again, this is just a starting point for us. We have lined up several years of innovation, both on the machine and on the pod front to continue to build the Verismo platform. So we're very pleased with the progress.
How about right here?
David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division
It's David Tarantino with Baird. Jeff, could you just talk about maybe where you are from an organizational capability relative to maybe some of the world class CPG companies that you're familiar with? Do you feel like you've got the right organization in place today to achieve the growth plan? Or is there still a lot of wood to chop in terms of hiring talents and building that out?
Jeffery J. Hansberry
I think we've made very good progress. I don't think we're all the way there. As I look at our U.S. business and I look at the capabilities that we have focused on, the 4 pillars, around shopper, category management, strategy alignment and relationship management, I think we have made very good progress. We've been at this for 2 years. The very strong competitors that we face everyday down the aisle have been at it for 50 to 150 years. So I'm not going to say that we're as deep, as capable as we need to be. It's a journey. I think we're making very good progress on that journey. And I think we're at a point now where we've got stability and we're continuing to get better every single day. We've got stability now to the degree that we're starting to increase our level of focus on International. And we've got the stability now that will allow us to step forward and begin to aggressively move forward internationally, to double our country count over the next 3 years, to get to places like China and India, which are going to be very, very big opportunities for the channel business.
Right up there.
Michael Kelter - Goldman Sachs Group Inc., Research Division
It's Michael Kelter from Goldman Sachs. I wanted to ask that initial comment Howard made about an hour ago about CPG being as big as the retail stores. It's a rather large number to get to. Could you help -- you guys have articulated the strategy well, but maybe you could take a bottoms up build on how you get there. Is it going to be mostly coffee? Or is it going to be kind of like the Pepsi way of getting away -- Coke of getting away from cola and into juice and tea? Is that how you'll get there? Or do you need to do food to get to a number like that and La Boulange which is a fresh bakery and not translatable into packaged goods enough to get you there, if that's the idea?
Jeffery J. Hansberry
Well, thank you for the question. I'm not sure I can map out for you the specifics of it today. But what I can say, as you look at the 3 pillars of growth from a category standpoint, we've articulated as building on categories, channels and countries. So we'll get significant growth across those axes relative to where we're going to play. If I narrow in around categories, it's going to be primarily around coffee, tea and the health and wellness space. That is the primary focus for us as we build this business. We're only in 20 of the 61 countries where Starbucks plays. So we've got tremendous channel opportunity. And from a category standpoint, we have just scratched the surface on tea and we're seeing a significant transformation in coffee that we intend to lead in. Those are going to be the very, very broad-stroke building blocks that will get us toward being the next growth engine for Starbucks. Thanks for the question.
Mitchell J. Speiser - The Buckingham Research Group Incorporated
Mitch Speiser of Buckingham Research. The CPG group or Channel Development Group, grew revenues about 50% in fiscal '12. I think some of that was helped by the transition to in-house and to K-Cup introduction. But we think about, maybe this year, next 3 to 5 years, what type of growth rate on an annual basis in revenues should we think about when building on our models?
Jeffery J. Hansberry
Right, right. We haven't shared that specifically but what you can expect from us, are growth rates higher than the company average. We go as far as 50 a year. Now that was a joke. Thank you. But you can expect us to grow faster than the -- to continue to grow faster than the company average. Thank you.
Ronald J. Hottovy - Morningstar Inc., Research Division
This is RJ Hottovy from MorningStar. I got a question. Previously, you discussed operating margin goals for this segment being -- getting back to approximately 35% or greater. With all that you've got in the works right now, is that still an attainable goal and considering that investments going to be part of the growth plan the next couple of years? And maybe how you get to those numbers, if it is attainable.
Jeffery J. Hansberry
Right. Thanks, RJ. So historically, we've talked about 30% to 35% is directionally where we want to get to. We finished '12 at 27. And directionally, we see our business moving closer toward 30% over time. We're going to -- to your point, we're going to continue to invest and continue to build as we move into new countries. We continue to extend our new businesses and platforms. What you can expect over time that we will move toward -- closer toward 30%.
Will Slabaugh - Stephens Inc., Research Division
Will Slabaugh from Stephens. With regards to the Tazo video that we saw earlier, can you talk about, maybe comparing and contrasting your expectations and your plans for Teavana versus that? And then maybe how those 2 brands can coexist down the road given how they can potentially be pretty similar?
Jeffery J. Hansberry
Yes, it's a great question. And importantly, we do see both brands as being critical to meeting our ambition in the tea space. So as we look at Teavana, they've built a retail platform that has fantastic retail economics. They've done a great job in curating design for merchandise and beautiful loose leaf teas. We love all that about Teavana. We want to continue to accentuate that. What we bring to the table is our handcrafted capability, our real estate capability and our design capability. Together, we're going to build Teavana retail stores. The mall stores will continue to be tea and merchandise focused with a beverage component. But importantly, we're going to build a new-to-the-world urban neighborhood footprint. And we think we can build many of these stores. They will be beverage forward. They will be all about again, handcrafted beverages. Tazo will continue to play a very important role. As you see what we've done on the Tazo brand, we've reinvented the brand. We've up leveled the packaging. We think there's a significant opportunity for growth for the Tazo brand in the package space -- in the packaged tea space. Thanks for your question.
Respond to the question about CPG, about how do we build the business from the ground up, I don't have the specific answer to the question. But I have an illustration for you that might give you some insight as to how we're thinking about things. So let's take India as an example. We waited a long time to enter India. One, because of how complicated it is, and the infrastructure issues are very challenging. And we targeted from day 1 only one company that we thought, from a values position and a capability, we could be in partnership with. And as a result of waiting and being very patient and building a long-standing relationship, we finally entered India with probably one of the most impressive, trusted values based companies in the world, and that's Tata, a $100 billion enterprise that is an extraordinary company. Now with over 1 billion people in India, Tata has a significant capability built in already in the food and beverage space. And no matter who you talk to in that country, any time you want to do anything in terms of food and beverage, the company that you got to go through is Tata. Now we are sitting with a 50-50 JV with Tata. And more importantly than that, we are talking about ways in which we can leverage the assets that they have and the assets that we have, to take full advantage of our capability and theirs. Now the brand Starbucks is not ready, certainly, to proceed within CPG in India. What we need in India is we need a footprint of stores that builds the brand and builds a level of loyalty and understanding. But as an example, the country of India is ripe at the right time, leveraging the partnership with Tata, to enter the CPG business. That's one example. The other example, and the obvious one, is China. We have 700 stores in the mainland, we have over 1,000 stores, including Hong Kong and Taiwan. And if any of you have been to China recently, you can see that we have crossed over the chasm of Starbucks now being a locally relevant, admired brand in China. We basically have a de minimis CPG business in China. It's more happenstance than anything else. But I can assure you at the appropriate time, we will have a very profitable and ongoing significant CPG business in the 2 economies of the world, that over time, we'll have thousands of retail Starbucks stores. And that's China and India. And so it's not just what we're talking about today and it's not an aspirational goal. This is real, it's significant. But we're going to be very patient, very disciplined and take advantage of the partnership we have with Tata and the maturation of the brand to enter those markets at the appropriate time. Thank you.
Jeffery J. Hansberry
Thank you. Now it's my pleasure to introduce our President for EMEA, Michelle Gass.
Good morning. It's my absolute pleasure to be with all of you this morning and talk to you about what is happening in EMEA. I've had the privilege of leading this region and our transformation efforts for just over a year in my 16th year with Starbucks. What we're going through in Europe, in many ways, is reminiscent of what we went through in the U.S. back in 2008, 2009. A fractured economy, record unemployment, fierce competition and, of course, dealing with our own self-induced mistakes.
As many of you know, I have the privilege of working alongside with Howard and the leadership team, as we architected the transformation agenda and ultimately saw its great success. Well, I'm having the opportunity of taking many of those lessons and apply them back in EMEA. But importantly, through the lens of the European consumer in the European marketplace. And just like we had the entire organization in the U.S. focused on the transformation agenda, we have our plans. We call it the Renaissance plan. And as the European term implies, it is very much a rebirth of the brand and the business across Europe.
So before I get into the details of the plan, I want to tell you here today that it is absolutely a new day for the business of EMEA. When we launched our Renaissance plan and our espresso launch back on March 14, we launched to our people with a mantra. We called this a new day, and that has actually stuck over the last year and you'll hear it throughout the region. Well, I think that term very much applies here today. Our past performance is in no way an indication of our future. And I hope through the next 20 minutes, you will share my confidence, that in fact, we will turn the page and it will be a new day. So as I stand before you, I am unequivocally planting the flag that we will turn this business and we will be a meaningful contributor to our shareholders and to Starbucks going forward.
As we think about our business, EMEA today stands at 36 countries. We employ over 20,000 partners and roughly 1,900 stores. And I just said, we're importing many of those very lessons, the customer, quality, the focus on operations. Profitability, we have as much focus on the insides of the P&L as we do driving customer engagements. But above all else, as it always implies or applies to Starbucks, it begins with our people. We need our people with us. And so a big focus of myself and my leadership team over the last year has been inspiring the mission and the culture of Starbucks.
Just as we did in 2008 in New Orleans, when we gathered 10,000 of our store managers from across North America and as you recently just heard about Cliff talking about Houston, we did that very thing back in February in Amsterdam. And we brought 350 of our top leaders, our district managers and above, representing over 36 countries, 6 simultaneously translations, our company-owned stores, our JV and licensed partnerships, all to come together for the very first time so that we could share and inspire beliefs of our Renaissance plans, so that we can connect them to our mission, to our coffee, to the very first time they got to go to a coffee plant in Amsterdam. And importantly, to set a new bar of performance and get them ready for what was ahead.
Let's take a look.
There's no doubt in my mind that, that meeting was absolutely critical because it has been an incredible year. But we brought our DMs with us, and they in turn brought their store managers. And I have great confidence, as does my team, in our plan. Since we launched our plan, I've visited more than 2/3 of our markets. I've connected with customers, with partners, open forums, round tables. It's informed our strategy, the success where we've headed, but above all else, it's given me great confidence in the strength and opportunity of the Starbucks brand in great clarity and some problems we must solve.
As we think about the year 2012, it very much was a year of foundation setting and stabilization. And despite unprecedented headwinds and flat same-store sales and unforgiving currency exchanges, we actually did grow revenue by 9%. And that was driven in part by our acquisition of the Swiss Austria business, and importantly, the great strength that we continue to see in our JV and license business, and I'll talk more about that.
Our operating income did decline in FY'12, but there are some key reasons for that. In quarter 4, we took a couple of deliberate actions to set us up for future profitable growth. Number one, we optimized the portfolio. We took an $11.5 million charge in clothing stores. And that also included the transfer of our stores in the U.K. to our partner SSP. We also, by the way, sold our business to Butler brothers' Entertainment Enterprises in Ireland. And while that didn't hit the EMEA P&L, it was an important strategic move to give our business, with our oversight, of course, to a partner who's on the ground in Ireland and really understands that customer.
In addition to the $11.5 million, we also took a significant asset impairment of $9.5 million across U.K., Germany and France. Those 2 issues combined, on top of the logistics transition that we faced over the course of the year in the U.K., created the kind of profit erosion, if you will, that you see here. But let me tell you, we take these 2 charges out, we saw sequential quarter-on-quarter true operating profit improve, and we did see year-on-year growth. And many of the practices that we put in place, the cost discipline, as we also focus on the customer, will continue going forward.
Clearly, our same-store sales, our company-owned stores, were our biggest challenge. And we were about flat for the year. Now I don't need to be up here telling you what the economy is like in Europe. And if any of you are traveling over there, you certainly see it and feel it. And retail foot fall, people shopping, has been dramatically impacted by the shrinking economy, unemployment and the fragility of the state of the customer. And we are not immune to that. And in fact, the issues that we face in Europe are even more acute because our business in our company-owned model are largely centered on the high street. We're in the city. We're in shopping malls. And that's where people, unfortunately, are not showing up that much. But I'm not here to tell you that we're using the economy as an excuse because we're not. In fact, much of what we're dealing with is the issues we've created, our self-induced mistakes, if you will, over the last 10 years. And that's what the Renaissance plan is created to address: to invest in our people, in our stores and in our customers.
And on this turnaround journey, we do need to look past just the short term result just as we did in the U.S. several years ago. And as we look at leading indicators, our marketing programs, brand health measures, as some of our new products are resonating, I will assure you that we are seeing progress.
So simply put, we have a very clear strategy. The Renaissance plan is focused on 3 areas. One, improving the health, the relevancy and the differentiation of the Starbucks brand, how much our customers love this brand across Europe; number 2, unlocking the profit opportunity of our existing store base; and number 3, just really exciting, is positioning us for the future and driving growth through the licensing opportunity.
So let's start briefly with the consumer and the brand. Just as the 2008 transformation began, as it always does with Starbucks, it starts with coffee. And for Europe, it's not just coffee, but it's espresso. I will tell you traveling many high streets over the last year in Europe, you can get espresso on every corner and every door, and everybody is competing for that shrinking wallet. So for us at Starbucks, it has to be the best. No question. And we looked in the mirror, and we knew we could do better. So what did we do? Like the U.S., we retrained all of our baristas. We introduced the latest, greatest steaming pitchers. And, oh, by the way, all the great lean innovations that also make it more efficient, we're bringing that. We brought in new serve ware. And then we also took a couple of big swings because we have to be relevant locally. So in the U.K., as an example, where the market had defined a stronger latte, where half of our lattes were in the tall size and most of the markets made it stronger with 2 shots. We redefined our standards. So if you visit London and you order a tall latte, you'll get it with 2 shots. We've seen great success with that. We know now it's customer preferred, and it's enhanced the image of the Starbucks brand for our customers.
And then secondly in France where they drink the solo espresso practically all day long, the customer wanted choice, just like you get choice today in our brewed coffee here in the States. So for the first time in our company's history, we introduced a second roast of espresso to the French consumers preferred by them. It quickly commanded over 20% of the mix and grew espresso sales 30% from where it was headed.
But a great product is not enough. And the hallmark of the Starbucks Experience has always been about the personal connection. And as we got on this Renaissance journey, we asked ourselves what more could we do? How can we improve that relationship between the customer and the partner? And so we did something that no other regions had done yet, which was, as we like to say, we put our coffee on a first-name basis. So in every place across our 36 markets, we are doing names on cups. And we took it one step further and we put names on aprons. And if you heard Cliff talked about earlier, that opportunity is now being mirrored in many parts of the world. And we didn't launch this entire thing quietly. But we got out there to tell our story. We created over 1 billion media impressions, an unprecedented number from EMEA as we talked about our Renaissance plan, talked about our new coffee, our new latte. And then we launched a comprehensive marketing campaign. And we went on television for the first time in the U.K.
Take a look.
When we launched that and we did offer our new latte to customers, we had lines out the door all over London. There was so much going on, customers actually got in line not knowing what was going on, but they had to be part of it. So needless to say, we are quite pleased.
A great latte, a great personal connection, you also need a great store to go with it. And over the last year, we've made a significant investment in improving the environment of our store, starting in the U.K., but we've also touched many stores across the regions. In the U.K., we've renovated 100 stores, over 70 in Central London, and did that just in time so we could welcome the world to the Olympics.
We're using the opportunity to take all the great work that's happening in the global center from Arthur and his team and design, and then bringing local edges to it. So things like in the U.K., Chesterfield sofas, or in Amsterdam, we have art murals made out of bicycle tubes, where everybody rides their bike everywhere. Or in Spain, with one of our JV partners, there's a stunning store in Barcelona where we used reclaimed antique tiles. And that's just a very short list so that every store really does feel reflective of the local communities.
And then value, a very important issue for the European customer. Never has there been a very more important time. So taking some great pages again out of the U.S. playbook, the Starbucks Card and My Starbucks Reward are very important tools as we address how to be relevant from a value standpoint. We've been launching both Card and MSR across the continent, across the region, over the last year. Starting in the U.K. in January, where we now sit today with a great program, over 800,000 gold card members, over 14% of tender and growing, and spend is up over 35%. And like what you heard Adam talk about with the great success of mobile payment, we're also seeing that in the U.K., over 35,000 transactions a week. That number might seem small to you, but I will tell you that we are amongst the leaders, if not the leader, in the U.K. for that method of payment.
We've more than doubled our reach in social media on the quest to also build a great robust engine to do the comprehensive 360 model, more than 1 million followers, for example, in the U.K. on Facebook and Twitter. And so we're not stopping there though because day in and day out, we need to get more customers in the door and, like I said, address value. So let me give you one brief case study in Germany.
In most of Continental Europe, U.K. is slightly different. But in Continental Europe, our business is largely dominated in the afternoon. And often, we are seen as a bit of a treading case. So we have a tremendous opportunity to actually build that morning daypart. And if we can do that, wow, we get it both. And we know, for example, that the Germans do drink coffee, but they often start their day and drink it at home. So one of the things we did as we celebrated our 10-year anniversary is we created an offer, a EUR 1.50 latte offered just in that morning daypart to invite them in. Offered that for 12 weeks. Well, I'll tell you, tremendous acceptance. Over that promotion period, our transactions grew over 28%. Actually, as customers learned about that through digital, et cetera, because we didn't actually spend a lot of marketing, doing it mostly viral. We actually peaked at a growth of 48%. More than 50 incremental customers visiting us every single day. And the most exciting thing is we've seen a lot of that continue, actually seeing morning daypart comps improve about 10%. So expect to see more of that to come not only in Germany, but other parts of the region.
Before I share with you the other 2 strategies, so we get the consumer and the brand, profitability and, of course, licensing, let me just talk briefly about what's going on right now in the U.K. around tax media because we are talking about the brand. And of course, near and dear to our heart always is ensuring that we've got great trust with our people and with our customer. Well, unfortunately, it is true that over the last 14 years, we have only posted an operating profit in the U.K. just once. So as a result, we have only paid corporate tax once, again, over the time we've been in operation. Now we've contributed lots and lots to the U.K. economy. We employ 8,500 people. We spent hundreds of millions of pounds in local sourcing, lots of money to rent. The list goes on. But nonetheless, this has begun to be a very hot topic in the media and with the politicians. And I will tell you we will always do the right thing. And no one more than me wants to pay more or wants to do more than pay U.K. tax. So stay tuned. We have great confidence that the work we're doing as we sit here today, the Renaissance plan, the cleanup of the U.K. store portfolio will, in fact, accelerate our way to profitability, and we will pay more tax.
Beyond the brand, the team has as much focus on extracting and driving as much profit out of the store box as we possibly can with now a renewed and great sense of cost discipline, like we created back in the U.S. transformation, up and down, every which way, on the P&L. We're addressing G&A, finding ways to operate in a more efficient manner. We are driving control in our controllable, labor as an example. We're now comparable in the U.K. to the U.S. Waste is a focus, driving new tools back to labor, Germany and France, where there are complex regulations, so we're implementing those. And then supply chain, huge opportunity for us. As I mentioned, we've been in a massive transition over the last year in the U.K. as we changed providers and went to a consolidated model. That did create some cost erosion this past year. We're getting that in line. We actually see tremendous opportunity, not just in the U.K., but across the region. And then in cost of goods, what we spend on everything, from milk to food, et cetera, and looking for those win-win opportunities, so a very small case study. But we sell a lot of muffins in Europe. In fact, it's seen as a differentiator to us. And in the U.K., we've relaunched our muffins this past year because quality was not where we need it to be. And as we did this, we are actually able to work with our vendor to also get a better price. So it was a win for the customer, a win for us, a win for the supplier.
We'll continue to see that level of traction as we head on the path to our big aspirations around tremendous profit potential in the region.
The brand, profitability, now let's talk about growth. I am tremendously excited about the licensing opportunity in this region. And there's really 2 sides of that coin, one is the geographic license business, one we've been in for over a decade. And then the channel, or the captive audience license, which is really the emerging opportunity. And I will tell you, one of the biggest best we have in plan. Before I go there, let me just spend a minute on our geographic license business, a very strong, healthy profitable business for us. We work with tremendous partners, who love this brand as much as we do. We have existing partnerships and new ones, like we just signed on Umoe Group, and we'll be entering Scandinavia for the first time this coming year.
We just share one quick case study, and that's with Alshaya, our biggest partner across the region. They lead our business in the Middle East, in Russia, in Turkey, 550 stores, and they are seeing tremendous result, double digit, record comp growth. That business is growing, they are investing, and we are partnering in new ways. We're bringing them new levels of innovation. Strawberries and cream Frappuccino they had asked for, we delivered that. And we not only delivered that, but delivered it locally sourced. So easier for their supply chain, lower cost. We're doing a lot of local sourcing with them. We're also driving relevancy in the community. We just launched a great youth platform in Jordan with the International Youth Foundation. And we're opening brilliant stores. And this image behind me, this store we just opened in November in Kuwait in one of the biggest malls in the Middle East, The Avenues. It is a stunning store. It's 4,500 square feet. We actually brought Clovers for the first time to the Middle East. That's selling many, many cups a day, and it's performing exceptionally well, delivering over $85,000 a week.
Okay. On to, like I said, one of the biggest [indiscernible] in the plan, which is our captive audience channel licensing opportunity, really an untapped opportunity. And as I've traveled the region, I see it everywhere. When you think about the Starbucks opportunity in here, sitting here in the U.S., you think about getting your Starbucks on your way to work, in a hotel, when you're in transit. Well, we are just beginning that journey. So while -- yes, has the espresso existed for a long time in Europe, absolutely. But, boy, do people need Starbucks in their daily life. This is the future of our business. So let me declare that today, licensing is the future. And we will bring Starbucks to all of those places where our customer wants us.
And the opportunity is not just about seeing where our customer wants us, but it's also a very great financial opportunity. We see by the end of FY'13, we'll more than double our stores to 350 from where we started off in the beginning of FY'12. We have the opportunity over the next 5 years to build close to 1,000 stores. I will say there's probably even more potential than that. And even this coming year, over 90% of the stores we will open will be some form of licensing. So we're just not talking about it, we are doing it.
And as you can see from the chart behind me, over time, we will triple the percent of mix to where we are today. And the attractive economics, high average unit volumes, 1.9 million on average as we sit here today, our 2 top-performing stores are actually in airports, Schiphol and Oslo. They do over 1,000 transactions a day. And Oslo, we don't even have it on a high street business. So it's a testament to how opportunistic and profitable these stores can be.
We work with proven effective partners, who understand these channels. They understand the brand. And like I said, it's a great model for us, much lower risk, great business for us, great business for them. Transit provides one of the biggest opportunities in this space. Let's start with the roadside, for example, motorways. We just have a handful of drive-throughs across the region today. But we know how successful the drive-through model has been in the U.S. And I will tell you, the early drive-throughs that we've built in Europe are as successful. So we see an opportunity for hundreds, hundreds of drive-throughs over the coming 5 years, and we're also signing up licensing partners like Euro Garage in U.K. to help build those.
And then there's trains, of course. Everybody in Europe travels by train, and we have just a few in-train stations across the continent. That is a very big focus for us. We'll double our presence by the end of FY -- or we did double by the end of FY'12, and we'll double again by the end of FY'13. We started the year with no train station in Paris. We now have 6 on our way to many more. So one of the most exciting openings just last month within a train station in Amsterdam. And believe it or not, the lines going out for that store looked like the one that Howard showed earlier in Pike Place store. We actually had 3 customers sleep overnight waiting for the store to open, and it's averaging over 1,400 transactions a day. We're just beginning.
So planes, trains, automobiles. Well, let me tell you, not just the train stations, but we're going to build our very first Starbucks store literally on the train. We're working in partnership with the Swiss rail system to build a Starbucks store inside the train's car, never been done before anywhere. And it will be the full-on Starbucks Experience. Well, the chairs won't move. They have to meet the regulations. It's a double-decker train. You can see here, we'll have branding right on the outside as that train is going all over the countryside, and we will certainly serve the full suite of Starbucks beverages. Our partner is unbelievably excited. We pilot next year, and there's opportunity for many more with them and hopefully a best practice we can take across many trains across Europe.
Big stores like Kuwait, smaller stores and innovative like on the train station, and we're going even smaller. So just a few months ago, we launched the first ever Starbucks -- Starbucks-branded vending machine, which we call Starbucks On The Go. It is state-of-the-art, and literally, at push of a button or I will tell you in the iPad generation, a touch of the screen, you can get, in under 60 seconds, a Starbucks-quality latte, mocha, Americano, espresso that truly rivals the quality of what you can get in our store. And I would have loved to bring one of those machines along with. It's a little big, and the plug doesn't work. But if you make it to London, we've got 7 in pilot. And we are particularly pleased with them. They're exceeding our expectations on cups per day. And as we've talked to customers and done a little research, 80% of them say it's a great fit with the brand and exciting to these partners that we're working with. And whether that's grocery stores or convenience stores or places where you just can't get a store but you can put a vending machine, people are saying they would come more often, 50% would come more often because they know Starbucks On The Go is available.
It's getting incredibly attractive economics. And we see the opportunity to really tap into what is today 120,000 machines in the U.K. alone. The premium segment is quite small, so we see opportunity for hundreds, if not thousands, across the U.K. and perhaps over time globally.
So to sum it up here. Hopefully, over the last few minutes, you've gotten a sense of where we're headed. And so we sit here today, and again, FY'12 was unusual because it does have those one-time charges in there. But nonetheless, our aspirations are much loftier. But we are betting, number one, we know we're getting traction on the brand. And it's only a matter of time before we see that transition into our same-store sales. Number two, we're clearly getting traction on the operating margin side of the business, and that will continue. And number three, we have the tremendous opportunity to unlock the growth in licensing, and all of which give me tremendous confidence that we will hit mid teen digits over time.
So to close it out, I will close it out how I began. It will be and it is a new day for Starbucks EMEA. And I stand in front of you representing a team back across the pond that is unbelievably committed, passionate and will do just about anything to turn this business and to win. You have my personal commitment, my passion, my all in that this business will, over time, become a meaningful contributor to Starbucks, to our shareholders. And we will make our customers, our people and all of you as investors very proud.
Thank you very much.
So we have 10 minutes of Q&A specific with Michelle on EMEA. If we can get a mic stand here, we have a question right in front.
Rob Wilson - Tiburon Research Group, Inc.
Rob Wilson, Tiburon Research. Howard, 3 years ago, you talked about primarily Europe. And you suggested that you saw the beginning of a turnaround. And I guess, my question to Michelle and to you is what's different today versus 3 years ago?
Let me take it. Well, I'll start number one with the model we put in place a year ago, which is what we usually call the regional operating model. So literally myself moving from Seattle to Europe to be on the ground, to create a locally based leadership team, to get our hands dirty, to get into it, get into the details, number one. Number two, what you do see is we are making investments. And we know those investments will pay off in the long run. Number three, we're taking action, right? So we sold our business to SSP. We transferred ownership to Ireland, and we are making this very big bet on licensing and, in particular, in captive audience that wasn't as much of a focus historically. So when I think about all of those things and I look at the traction that we're already seeing on many metrics, I have great confidence that we are in a different place today than we have been historically.
Howard D. Schultz
[indiscernible] question by herself because we own it together. A few things, one, I think we saw progress a few years back. And then there's no question, we're not using it as an excuse, it's just a fact, that the fracturing of consumer behavior throughout the Eurozone is like nothing we've experienced anywhere in the world. And as you know with Greece and Spain and just the cloud hanging over all of Europe, consumer spending is at a very, very low point. I would also say it is the most ferocious place for competition, not only with regard to coffee, to anything that relates to food. Now I want to give Michelle a lot of credit because Michelle was at my side in the leadership team side as the primary co-author of the U.S. transformation in '08. And what's different today is I personally asked Michelle to move her and her family to Europe to transform this business, leveraging all the tools and learnings we had from the U.S. And our confidence in Michelle and the team she's created is much different than it was a few years ago. And I think we have an uphill battle because of the headwinds of the Eurozone, but the confidence we have in what we can see the early signs of some of the changes that we've made and the customers' reaction is quite encouraging. This will not happen overnight, but our commitment and our, I think, our resilience to get this done is at 100% level. We are going to turn Europe around.
Sharon Zackfia - William Blair & Company L.L.C., Research Division
Sharon Zackfia with William Blair. Michelle, in your Renaissance plan, clearly unlocking an existing store profitability is a key part of that. And I'm just curious where that store profitability is at this point maybe versus peak? And what a realistic goal would be for Europe for store level profitability?
Store level profitability, are you -- you said at peak? I'm sorry, I didn't get it.
Sharon Zackfia - William Blair & Company L.L.C., Research Division
So earlier, Cliff put out that the U.S., is that I think it was the 24% level margin. I just -- I think we've all lost track of where Europe is now at the store level. Maybe if you can give us some perspective on when that peaked though and at what level, and then what the game plan is, what the realistic target is for European store level margins.
Sure. Well, what I can tell you is we certainly did not peak. And there's tremendous opportunity. I mean, literally as we turn over every rock, there's an opportunity, labor cost, labor efficiency. In the U.K., that's been a huge focus on to remove, I'll call it, non-value added, customer-facing time and extract that. We have very old tools in many parts of Europe. We're changing that in parts of the continent, so we can get more efficient. We're bringing lean practices in, so we can improve the service and also drive cost up. That's sort of one big bucket of activity. Supply chain, I did mention. And that's another tremendous opportunity for us to get a whole lot more efficient. We put our new consolidated model in place the U.K. to drive efficiency over time. We had a few hiccups along the road. It did create more cost, so they're coming down. And we see over time and in fact we'll be in better shape than we were before. Waste. Focusing on waste, the implementation of the new milk pitcher that has lines, we're not throwing out as much milk. Another key area of focus. So I love to be here today and sit here and tell you we'll be at U.S. levels, but I will tell you we will do a dramatic improvement from where we are today. All of which contribute to hitting the mid-teen margin over time. Thank you.
Joseph T. Buckley - BofA Merrill Lynch, Research Division
It's Joe Buckley, BofA Merrill Lynch. One very near-term question and then one a little bit longer term. On the near term, does the U.K. tax issue affect the brand in the near term? Have you seen any effect on sales? And then with respect to the licensing opportunities, are you thinking within the countries you're currently operating? Will that involve some selling -- more selling of company units? Or is it the countries that you're thinking about from the licensing side?
Sure. Well, first of all, to talk about the tax issue. What I'll tell you is we always give -- we keep our ears to the ground very close. We start with our people, and we're connecting with them continuously to ensure that they have all the current information. And this is a point in time, and we know we're going to get through it. And we're going to make the right decisions for the brand, for the health, for our customers over the long haul. Secondly, as it relates to licensing, the opportunity is in existing markets and in new markets. So yes, we will look at opportunities. I'll take the U.K. as an example. We are exploring franchising, and we have certain franchise partners signed up. And we'll open our first franchise store in the not-too-distant future, and that will give us access kind of off the high street into markets where these local operators really know the local customer and can do a great job there. And across really every market, whether it's the channel licensing opportunity or franchising, these are all on the table as we look to grow our point of presence and create more access to the Starbucks brand and change the economics as well.
In Europe, can your loyalty card customers use their card when they travel from one country to another?
Right now, unfortunately, no. That is something that comes up from time to time. It's very, very complex to do that with the banking regulations. But someday, if there's a way to unlock that, I would love to be able to do that. But right now, unfortunately, there's not an easy answer to that.
John S. Glass - Morgan Stanley, Research Division
It's John Glass from Morgan Stanley. Just following up with that, do you mean you like to re-franchise, sell company stores specifically back to franchisees or licensees? Are we talking about some growing license? I think that's one. And then secondly, all else equal, most of the retailers and restaurants in Europe that have average volumes that are similar to the U.S. have a bunch of -- much more margins. So your average volume in Europe is 1.1 million, U.S., 1.2 million.
John, can you speak up, please?
John S. Glass - Morgan Stanley, Research Division
I'm sorry. The average unit volume in Europe is 1.1 million, in U.S., it's 1.2 million. Could you actually achieve margins you can close to the U.S. given this higher structural cost in Europe at the 1.1 million? Or is this really just about growing your volumes, which is easy to do and at least that makes the question a bit simpler? So re-franchising and then margins at the same volumes.
Right. So let me answer the franchising and the licensing. As we sit here today, largely, the focus is on the new opportunities. Well, we'll continue to look for, like I mentioned, SSP and the sales [ph] to the airports or Ireland. If there's an opportunity where it makes sense, we'll take a look. But first and foremost, we have to make sure that any deal we do, existing or new store, is with a partner who will treat our brand the way we treat ourselves and, of course, give us access and bring unique skills to the table. So I say everything is sort of on the table, but we've set a very, very high bar. And largely, the focus today is around the new opportunity, right? Channels, licensing, opening up new opportunities both in existing markets and in new markets. And then secondly, as it relates to the profitability of our stores, it's really both. So there's an opportunity to drive transaction, and we have many plans in place. I talked about focus on daypart. That's a really exciting opportunity for us around Continental Europe with that morning daypart is still in a bit of its nascent stage. And then on the core profitability, and that's a big focus for the team and for the operations. There's lots that we're taking directly out of what we learned in the U.S. and bringing that right into the operations in Europe. So both will play a role.
We just ran out of Q&A time.
Oh, we ran out?
We can catch you on the break. We need to go to the next speaker.
Okay. Great. And I'm introducing John. It's my pleasure to introduce John Culver, President, China, Asia Pacific. Thank you.
Good morning. My name is John Culver, and I'm President of China and Asia Pacific. And frankly, I've been dying to get up here all morning to talk to you about what is by far the single largest and most immediate retail growth opportunity that Starbucks has in front of it.
When we first opened our store in Japan 16 years ago in the Ginza district, over the last 16 years, what we've done is we have built a brand in this part of the world that is strong and today stands across over 3,200 stores across the region. Our brand has never been healthier, our partners and customers have never been more engaged and our financial performance has never been stronger. I have great confidence in the ability our team in China and across the Asia Pacific to continue to grow at a rapid pace, to capture the opportunity and to do it in a way that is going to continue to increase our shareholder value.
The region today is made up of 11 countries, with our most recent country that we opened in India, which Howard highlighted in his comments. And soon, we'll open our 12th country in Vietnam right after the first of the year. The ownership structure across the region is a diverse ownership structure, but it's important to note that all of our business partnerships are very, very strong. Historically, the majority of our revenue and profits in this part of the world have been generated by our joint venture and our licensed markets. Now going forward, as we accelerate our growth in our company-owned markets, and particularly in China, a shift is going to occur, and these company-owned markets will become a much bigger contributor to the financial success of the region.
Take a look at this slide. These are record results over the last 3 years, and it's really been remarkable. And what it further demonstrates is the significant strength of our brand and why we feel we have tremendous opportunity to grow much faster and to go much further.
From a revenue perspective, we've grown over 33% since 2010. And during that time, our operating income had nearly doubled to $254 million, and our operating margin is now the highest of any business that we have in the company. We have achieved these record results, while at the same time, balancing the need for critical investments and critical infrastructure that's going to set us up for the long-term success and long-term growth in the market. And lastly, over the past 3 years, we've grown our share of company profitability from 9% in 2010 to over 13% in 2012, remarkable results.
From a store perspective, our fundamental economics are very healthy, and they really begin to demonstrate that we're effectively deploying our capital and that we are having great success. Over the last 3 years, we've grown our store base over 27%, and our sales to investment ratio as a business currently stands at a remarkable 3:1, 3:1 for our new stores. We expect our new store margins over time will sustain in the mid-20s, and I'm very confident that the economic model that we've built over these many years gives us tremendous runway to fund future growth and accelerate the development.
As we grow, it's going to be very, very important that we grow in a way that continues to elevate our brand that continues to elevate our people. And equally important is that we stay very disciplined in our investments in order to ensure that we continue to drive leverage into the P&L.
The comp growth over the last 3 years has been nothing short of stellar and impressive. And when you look at it on a quarterly basis, this region has now delivered 11 consecutive quarters, 11 consecutive quarters of double-digit comp growth while continuing to expand at a rapid pace our new stores. Equally impressive though is that the 2-year comp last year in 2012 came in at 36%. And even more impressive, when you really dig into the comp and the breakdown of comp, is that this comp is not being driven by ticket, it's being driven by transactions. And what this means is that we're seeing an increasing frequency of our customers coming into our stores. These are our existing customers and these are new customers that we're attracting into our stores and that we are beginning to build the daily habit of Starbucks Coffee cup -- Starbucks Coffee in people's lives.
Now I do want to comment that given recent news coming out of Asia around growth and around the environment there and the question that many of you have around sustaining, can we sustain this type of performance. And what I want to say is that the comp growth that we delivered from a regional perspective in Q4 has so far sustained and maintained during the first 2 months of our Q1 quarter. Now our comp performance is important and only one indicator of how the business is performing. New store performance is going to play an increasing role in our revenue as we grow this year and beyond. Going forward, a much higher percentage of revenue growth for the business is going to come out of our new stores versus comp stores, and this is an important point to make.
The chart on the left shows that 3 years ago, new stores contributed approximately 1/3 of the revenue growth for the region. In 2013, new stores will contribute nearly 70% of the revenue growth for the region.
The chart on the right further reinforces the rapid expansion that we're undertaking and the significant role that new stores are going to play on a quarterly basis. And when you look at it from a quarter-to-quarter basis, on a year-over-year view, you can see that our year-over-year growth has been strong and that we are continuing to accelerate, and we expect this momentum to carry over to 2013.
Now let me turn and talk a little bit about China, where our team is very focused on accelerating their work to capture the enormous opportunity that exists for Starbucks, and I have a short video I want to share with you.
That video really gives you an idea of how our customers are embracing Starbucks. And as Howard said 13 years ago when we first entered China, the core Chinese consumer did not really have an appreciation for high-quality coffee and really didn't know what it was, and they also didn't really have a place to come with their friends and families. Fast forward, 13 years later, and our core customers, our local Chinese, they absolutely love our espresso beverages, and they have found incredible ways to embrace the third place experience.
From a financial -- from a performance perspective -- from a financial perspective, the business in China is well on its way to achieving the 1,500 store goal on the mainland by 2015. From a growth perspective, it's interesting to note that in a 3-year period, from 2008 to 2011, we added 161 stores, and that last year alone in 2012, we added over 200 stores. With this growth, a different way in perspective, and that is it took us 5 years to double the size of the market from 2008 to 2012 and to achieve 1,200 -- to achieve 700 stores. Over the next 3 years, China will double in size, and we will add over 800 stores during that time.
I have every confidence that the team is ready for the work in front of it, that the market can sustain its growth. And another indicator of that is that as we've grown, our average unit volume growth has continued to accelerate as well.
It's a very impressive to look at the average unit growth volume, and when you look at this chart in terms of its growth, we've taken the average unit volume for $500,000, all the way to $900,000 over the last 5 years. That increase represents a 75% increase in average unit volumes, and it's being driven mainly through transactions. These are the very, very early days of growth for our business in China. And what this slide does is it gives you a sense of how much room we have to grow. As you can see by this slide, our stores are distributed around the country, and we have a lot of room to grow in our Tier 1 and Tier 2 cities and to go much deeper. But just as importantly are the critical investments that we made along the way that's going to fuel the growth in our Tier 3 and Tier 4 cities as well. What we see as we enter these Tier 3 and Tier 4 cities, and I know you've had many questions about this in the past, is that the store performance that we see in these markets is just as good, if not better, than our Tier 1 and Tier 2 cities. It's amazing to see the traction and the way in which the customers in these cities and the lines out the door, the way in which they've embraced the Starbucks Experience. Today, our Tier 1 and Tier 2 cities account for about 85% of our total store base. In the coming years, as we accelerate growth, that will shift to approximately 70%.
Now let me take a moment and turn to one of the most important investments that we're making, and that's the investment in our people. Today, we have more than 12,000 partners across China, and over the next 3 years, we will more than triple the size of our Starbucks partner base in China. In China, our partner engagement stores are some of the highest in the company, and our turnover rate runs lower than what we see in the U.S. In April, Howard and I were in the market, and we have the opportunity along with Belinda, the President of China, to hold the first-ever Partner Family Forum in both Beijing, as well as in Shanghai. This is important because given the significant influence that parents have on their children's career choice, these forums were designed to showcase Starbucks culture and our values and to reinforce the commitment that we're making to the personal growth and the development of our people.
Additionally, last month, during the celebration of our 100th store in Beijing, we unveiled Starbucks China University. Now development classes offered through Starbucks China University are designed to support our partners' career development and to support their long-term aspirations with the company. These are important investments in our people. And obviously, they are the right thing to do, and they're going to support the talent pipeline as we look to grow this business in the future.
We also continue to make investments in the area of coffee and growing high-quality Arabica coffee in China, and this took place with our recent partnership announced with Ai Ni Group in Yunnan a little over a year ago. Next week, I'm going to be in Pu'er celebrating the opening of our first Farmer Support Center in China and our seventh Farmer Support Center around the world. This is an incredible milestone. It's very, very important to how we build the brand in China, and we work very closely with the Yunnan government to cultivate this relationship -- to cultivate the relationship with our farmers and to enable us to bring China grown coffee, high-quality coffee, to our stores in China and eventually around the world.
Beyond coffee, we're also making major investments in the relationships around real estate. And when we were there earlier this year, we held the first ever of its kind CEO forum where we invited in the owners, the CEOs of these major landholding companies in China. And following my presentation, what you will see are some of the design -- some of the store innovations from Arthur that we shared with this important audience. But this forum enabled us to begin to be able to build these relationships that we're going to need in order to continue to accelerate our growth in the future.
From a product perspective, we also continue to build the Starbucks brand in a very locally relevant way. As the leader in the market, we're focused on elevating our position around all things coffee and continuing to build the daily coffee routine of our current and our new customers. As I mentioned, we recently opened our 100th store in Beijing last week, and the entire China team was incredibly proud to announce that this store is fully staffed by certified coffee masters, focused on delivering that unique coffee experience and really working hard to educate the Chinese consumer around all things coffee. And with the upcoming Chinese New Year, we're going to introduce several locally relevant espresso-based beverages, which are unique to China and reflect our respect for this important holiday to Chinese society.
From a digital perspective, we're just getting started. We're building an ongoing, emotionally connected dialogue with our customers on platforms like Sina Weibo and WeChat. We're also seeing great success with My Starbucks Rewards. And since its introduction less than 2 years ago, we have already achieved a member base of more than 1.2 million members. This equates to more than 1,200 members per store, which is more than 3x the level of penetration of our U.S. program. Huge results, big opportunity and we're focused on it.
Now let me take a turn and take you beyond China and talk about 3 other key markets. As I mentioned, we've been in Japan for over 16 years now, and we continue to see great innovation from our team there as evidenced by the recent Starbucks Espresso Journey store that was introduced and the continued success of VIA in that market. While many businesses in Japan continue to struggle, our business in Japan continues to deliver record results, while at the same time, finding great ways to continue to elevate the Starbucks brand.
In Korea, we're celebrating 13 successful years in that market, and this market represents the greatest potential for growth out of the cluster of our Asia Pacific markets outside of China. We just opened our first drive-through in the market, and we just introduced a brand-new food concept store that's going to help us transform food in this market.
And then there's the newest market that we talked about, and that's India. As you saw from the video that Howard played, customers in Mumbai are embracing the Starbucks brand. You saw the lines. We've opened 3 stores already in Mumbai. And the performance that we see from those 3 stores has not only exceeded our expectations, it has massively, massively exceeded our expectations. It gives us great optimism that over the long term, India presents a tremendous opportunity for us.
Our partnership with Tata has helped us to navigate the complexity of doing business in India. And we've been able to leverage their capabilities in the areas of coffee, in the areas of food, supply chain, real estate and IT, and it is a very, very strong partnership. We're looking forward to enter Delhi at the first of the year and know that the market again presents tremendous opportunity for growth over time.
So in closing, let me share with you some of the critical milestones that we will achieve from a regional perspective. This year, Japan will open its 1,000th store. Korea will more than double in size to over 1,000 stores in the next 4 years. By the end of 2013, we will reach 1,000 stores on the mainland in China. China is on its way to becoming our second largest market by 2014, and we will have 1,500 stores in China across more than 70 cities in 2015, on our way to building the leading and most respected brand in this country and on our way to ultimately having thousands of stores in China over time.
I'm extremely confident that this region will continue to lead the company in accelerating growth and continuing to increase and meet your expectations as a financial community. I want you to know that you have my personal commitment that we're going to achieve these goals by doing what's right, by focusing on our people, by being focused and disciplined in the growth that we go after and, more importantly, by continuing to find unique ways to elevate the Starbucks brand. Thank you very much.
So we have Q&A specific for China, Asia Pacific, 10 minutes again. And if we could get that mic over there, that would be great.
Gregory R. Badishkanian - Citigroup Inc, Research Division
Greg Badishkanian, Citigroup. So my question relates to the comment you made about October, November same-store sales not really seeing much change. Obviously, other QSR operators have talked about that. So I'm just wondering first, does that pertain to China as well or is that just the overall region? And then second, why do you think your growth has outpaced other global QSR operators? And why aren't you seeing any near-term impact?
I made that comment because I know it's going to get this question because of the announcement coming out. So let me just comment that from a regional perspective, and that's where I want to focus on, is that we have seen the momentum that we had in Q4, the performance carry over and sustain through the first 2 months of the quarter. From a China perspective, we continue to see very healthy growth coming out of China and we remain very optimistic about the opportunity there, and very aware of the macroeconomic environment we're in. At the same time, I think you can look at the amount of runway that we have for growth in this part of the world, and you look at the way in which our customers are responding. There is a pent-up demand that is in a very nascent stage of us achieving saturation. I mean, we're nowhere near it, so I mean we could have thousands of stores, particularly in China, and across the region and we're just getting started. We're going to go capture the opportunity now. There was a slide up here, I don't know if you caught it, when I went to China, I said the future is now, right? The future for us, right, is now in China and we're positioned, from a position of strength, with our brand, with our people, with the infrastructure that we feel we can go after it in a much accelerated way and that's what we're going to do. Yes?
Alistair Scobie - Atlantic Equities LLP
Alistair Scobie of Atlantic Equities in London. Just going back to China, obviously, very impressive to hear about the 100 stores in Beijing and that the runway through to 1,500 stores. Given some of the issues in the U.S. just a few years ago, are there any sort of comparisons to make in total in terms of who you think about saturation? I know you said very nascent there, but I mean, how do you think you can go on beyond 2015, how do you assess the capability of the country to continue to take stores at that pace?
Well, I think first and foremost, we've got to learn from past mistakes that we've made as a company, and Howard's talked about that and I think that, that's been instilled in our team, that we want to be very disciplined in how we grow and that we want to have our eye on the ball, in terms of how the new stores are performing and how our existing stores continue to perform. And so we put in -- we've done a lot of work around that, to put in the discipline within the team, not only in China, but across Asia, to watch that. In terms of the cannibalization of stores and the cannibalization of sales as we open new stores, what we're seeing is that, again, there's an opportunity and a demand in the market. And if you go into our Tier 1 cities, there is still a lot of room for us to go much deeper and, ultimately, continue to raise the level of revenue, profit, transaction, in a given market by the number of stores we have. So it's about being accessible to our customers and in Tier 1 cities, that's Tier 1 and Tier 2, that's what we're focused on. The Tier 3 and Tier 4 cities is more about how do we get into those cities quickly and then how do we expand in the right way in those cities. And some of the pictures that you saw in the video of customers lined out the door, I mean, you go to any store opening in a Tier 1, Tier 2 or, really, the Tier 3, Tier 4 cities, and there are lines waiting for Starbucks to come. And similar to what we're seeing in the early days of the U.S. growth, when Starbucks arrives in a city, or in a community, it's a signal to that community that they have arrived. And the Chinese are embracing this. And it's just incredible to see the momentum and just the excitement the customers have for the brand, so.
We're trying to get people who have questions. The guy right back there.
Jeffrey Andrew Bernstein - Barclays Capital, Research Division
Jeff Bernstein from Barclays. Just a follow-up from the China sales perspective. From a 1-year comp perspective, it seems like things slowed a little bit but, obviously, more importantly, it looks for 2-year which is stabilized north of 30%, and even from that level, it looks like it perhaps stabilized maybe -- slipped a little bit, so I'm just wondering how you think about -- perhaps trends haven't slowed materially just yet. I'm just wondering if there's a few other things slumped perhaps how would you compare and contrast that to the U.S. when things slowed? I know in the U.S. ultimately you did a big push on perhaps loyalty and value to help insulate the results. So you're going to -- perhaps you're not seeing it yet, but things to come might be a little more -- and what concerns you and what can you do to help insulate results in China, so a year or so from now? And it seems like Starbucks holds up better than most, early days when things starts to slow and perhaps it slows again?
Yes, and I think that's a very good question. We talked a lot about how we're going to keep our eye on the ball and make sure that we keep the momentum going in the business. I think one thing that we're really focused on is driving innovation into the stores. I talked about the local relevance of the brand and how we're building that. We've localized design now in Shanghai. We've localized -- we have a local leadership team in place that is very, very strong. We've localized real estate development. And then we've also made a major investment from a research and development center in Shanghai as well. So really focused on driving meaningful innovation into our stores as it relates to the Chinese consumer. I don't think we've had that in the past. I think that's going to be one component of it. The second component is going to be, how we make sure that we balance the investment ahead of the curve and the performance of the stores to fund or fuel the future growth and look at it from a performance standpoint, and that's something that we look at on a regular basis. And we have the ability to either pull back or put our pedal down on certain things. So just really being focused and disciplined in that regard, those are the major things that we're looking at. On value and loyalty, it's interesting, since we introduced the Starbucks Card, it's a little bit different than what we have in the U.S. We haven't had to go to the loyalty level, let's say, that the U.S. has. That's something that we will continue to evaluate and look at. But what we've been able to do is we've been able to build 1.2 million members around My Starbucks Rewards and the penetration level of that is -- surpasses, on a per-store basis, anything that we have anywhere else in the world. So the Chinese consumer has embraced this concept and we're very disciplined in looking at the type of value that we offer as it relates to My Starbucks Rewards. From a loyalty and a frequency standpoint, what we see in China is that, from a frequency, our most loyal customers are coming in to the store 4, 5, 6x a month. We've got a lot of room to drive more frequency into our stores and I think we've got a big opportunity there as well over time, so. Yes?
Howard D. Schultz
A few things about China as it relates to the growth we've had and the issues around growing the company, perhaps creating some kind of an undisciplined approach of the growth going forward. Just a few things. First off, as you look at the really unique success that John just outlined, one of the things that he did not mention is that the key part of the Starbucks experience almost all over the world is the morning day-part. And to a large degree, we do not really have a significant morning day-part, yet, in China. So despite the unbelievable unit economics and the growth we're enjoying in China, the behavior changes that we're slowly seeing has not really occurred yet, but will, in terms of the morning ritual. That's one thing. The second thing is, I think the question about mistakes we made in the U.S. versus growing so fast in China, I want to take that question a different way and actually compare it, in a different way, to Japan. The greatest risk in entering Japan, 15, 16 years ago, and now the success we're enjoying in China, is things get very, very hot in these markets to the point where it becomes faddish, trend-ish, and all of a sudden, it's over. If you look at Japan, we've now been there more than 15 years, and there were so many companies, not only in our space, but so many other consumer areas when we started, 90% of them are gone, because we were able to establish a high degree of local relevancy, respect for the customer and our multiple relationships with multiple constituencies in Japan. We took all of that learning and applied it, on steroids, in China. Because China has been, the last 5 years or so, like a gold rush in which every Western brand is rushing to China. And the truth of the matter is, most of them have not and will not enjoy enduring sustainable success. We have now significantly crossed over that chasm. You see it in the growth, the unit economics, but the key is, to ensure the fact that the relevancy of the brand, the relevancy of the experience, is done through the lens of being locally relevant in China. And I think we have crossed over that and we're now part of the local Chinese society, as John mentioned. And I don't think there's any level of undisciplined decision-making or growth that we're now going to take and apply. And I can tell you, as I said in my opening remarks, those lessons were learned and the mistakes that were made in 2007, 2008, when growth at Starbucks became a strategy as opposed to an outcome. What we're talking about now is a much different approach, highly disciplined, highly thoughtful, data-driven and with a world of experience, as well as a treasure chest of assets and resources that we have at our disposal, to be able to tweak the model in terms of design, size and scale, as well as, what Adam Brotman has shared with you around social, digital loyalty card and mobile, which we'll be applying to everything in China over time. Thank you. Any more questions? Yes.
I wanted to ask, now that we are getting closer and closer to that near-term 1,500 goal in China, someone approached me earlier about what to think about beyond that. It seems like it’s on it -- well on its way to 10,000 units in that geography. So is there anything structural about the size of the coffee market versus the size of the QSR market that might be a little bit more limiting for you? Or the price points you choose to operate at, relative to substitutional products, that might be limiting? Or is there really that opportunity? And then secondly, even though you're talking right now with the Asia Division, very little conversation about tea, even though we talked about it a lot about elsewhere, tea is much more of a product -- a cultural product in Asia. Is it something that you're exploring now, whether be exporting the Teavana model or anything else that you're doing domestically or around the world that you might bring to Asia or that not part of the near-term plan?
Let me first take the first part of the question, in terms of beyond the 1,500 stores, and we'll go back to my statement that we feel China can have thousands of stores and we're looking at it from the lens of the Starbucks experience, and the opportunity that we have to continue to bring new customers into our stores and introduce the Starbucks experience to them. So in terms of the opportunity when you compare it to QSR, we don't go there. We go and look at the opportunity as it relates to creating the Starbucks experience in China. So far, we see room for thousands of stores in China. In terms of tea, I would say that there is an opportunity in China, across Asia, with tea and stay tuned on that, more things to come and that'll be developed over time, all right? So thank you, guys, very much. And now it gives me great pleasure to introduce to you our President of Global Development, our Chief Creative Officer, and really the man that has transformed the look and feel of our stores, Mr. Arthur Rubinfeld.
Arthur I. Rubinfeld
Ladies and gentlemen, in the next few minutes, I'd like to take you for a tour around the world. But before I start, I want to make sure that you understand that we know that, good design is good business. And let me start by talking about a personal experience.
Since 1992, when I first joined the company, one of the most transformative moments in my personal career was when a small group of us went away and wrote a few ideas on mission statements. This was years ago. And 4 out of the 5 of us came back to the table with the word "inspire," you know, in mission statements, for the future of the company. That's how we built the company, that's how we transformed the company several years ago, and I know it's going to be a very strong mission statement taking us for the next 50 years, as Howard spoke about.
At the very core of this, "to inspire and nurture the human spirit," you can imagine the responsibility that we all feel as the leaders of Starbucks, going forward, and in our decision-making and everything we do.
Now I shared a personal moment with you. Let me ask you, because it's pretty cold in the room, to take a minute and, I know that you're all in the finance -- the financial industry, but let's go back for a moment. I'd like you to think about all of the graphics and images you just viewed in the last few hours, in the quality of the design, in the thread and the attention to detail that we put in each and everything we do. And in your own mind's eye, think about your Sunday morning. When you get up and you have that personal moment, where do you read the newspaper, opening up a bag of Starbucks Coffee, hopefully grinding it fresh, what do you that day? Where's your favorite seat, in your favorite restaurant? When you take a packet of VIA with you, on an international voyage, a trip, and know that Starbucks is with you, where our children meet before and after soccer games and where our college-bound children go to study for SATs. In your mind's eye, think about that. Those are the Starbucks experiences that people all over the world enjoy.
We take the responsibility of continuing that design, in each and every decision we make. These are some of the brand filters we think about. Starbucks is a very emotional brand, it's an inspirational brand. In everything we do, we think about it. And they all come through brand filters, not just for Starbucks as a brand, but for Evolution Fresh and Tazo, and the other brands that we have throughout our portfolio.
Starbucks Experience is because everything we do from research and development, through store design, through the individual elements that my colleagues have presented to you, all around the world in 61 countries, through quality assurance and quality control, all are controlled in one area. And we think about it from start to finish.
Moments of connection. It's my personal philosophy that, the more our front door is our garage door, the more we work in front of plastic and monitors and PDA, and the more hectic our lives get, the more we all need moments of connection in Starbucks stores. Moments of connection that are so important to us, as people, and this is transformative around the world. Herein lies the opportunity for Starbucks and the responsibility that we have through design to give you that perfect seat, that perfect connection with an individual, in our baristas, the way that you come into our stores, the perception of our stores, as you enter them. I want to take you for a journey around the road. But in '08, we came back with new designs, designs that were rooted in organics and recyclables, in steel and stone. And rooted them in our coffee heritage, in Starbucks' own heritage, the heritage I started with, to inspire and nurture the human spirit. One cup, one person, one neighborhood at a time. This is how we're doing it.
We are the third place, the place between home and work. We all know it, we've been there and we all use it differently. But if you start to look at the thread, through the designs and the following 20 or so slides, I think you'll see, that the way we're doing it is paramount, no one else has done it in the world. I don't know if anyone ever will do it. And the way we've set it up, it's so disciplined for our growth and the aspirations that my colleagues presented earlier that I hope you believe and see what we're about to do.
In '08, we said we were going to be the leading LEED, leading energy and environmental design organization in the world. Imagine that a coffee company in Seattle putting that down as a statement. Today, we are the leading retailer, building environmentally sustainable interiors worldwide. How can we do that? We have design in many offices. We started with the palettes that were rooted in our coffee culture and good design and sustainable materials. We knew and know that design is, going forward, going to be sustainable and environmental, and less wasteful. We also know that in our little category of coffee shops, high design is achievable by many others in the market. So we have to lead, and that's what we're doing.
This is an artisan palette that leans in our modern, based on early 1900s, interior design. It's not all together modern, but it leads forward to modern, like in a picture like this, in a showcase store flagship in Seattle, Washington, where we have many stores that have been open since -- in 41 years.
The consistency that we have in design, and the reason I can make these statements that I'm making, is because we have designed in-house, that we all talk to all the time, in 17 locations, 17 major cities, 17 influencing cities and influential cities. Where design in the U.K. as is important as the design in Tokyo and New York City, in Los Angeles and San Francisco. And we're able to work together and use the design learnings that we have in order to be locally relevant. The discipline that we've put in place, as you're seeing in the map, gives us the ability, along with real estate in, not only in this many locations, but more. To be very disciplined, very controlled, very reactive and form personal relationships with landlords, that allows us to grow rapidly in India, allows us to grow rapidly in China, and in many other countries where those relationships are so paramount to being picked first and being told first about the main-on-main top line locations. And that is part of our success.
So how did we do this? Part of who we are today is the sustainable environmentally considerate company. This store was just named by Seattle Magazine as one of the most influential pieces of design in the Northwest in the last year. It's made out of 4 reusable shipping containers. Think about the connections, Seattle's a port city, reusable shipping containers, it's a single drive up, drive-thru and walk up. It's exceeding our expectations and it's located in a market that basically doesn't exist. It's on an arterial, there's 25,000 cars a day going to Boeing headquarters for manufacturing, next to the Museum of Flight and no other retail around it. We did this near our home because we wanted to see how successful it could be. And we learned from it and then went on to design what we call these, modular drop-in stores. And I'm showing you the thread on how we think. We did it close by, we saw the success, single drive-thru, walk-up, using high design. This store is being delivered, or was, recently within the last 2 months, to a suburban Denver market. It's made out of reusable snow fencing from Wyoming. It is high design to it. It'll be open in 3 to 4 weeks from the moment it is put on the slab. We could do hundreds of these in the U.S.
Understanding where to locate flagship stores into each and every market around the world, such as this one, Brewery Blocks in the Pearl District, the most influential market in Portland, Oregon. And coming at it with beer and wine in the evenings program, as well as Starbucks Reserve in a quintessential, highly elegant environment like this, elevates the brand worldwide.
And because bicycling is very important in Portland, we can now use local designers to build local relevant artwork with messaging. So what you're seeing on the right is made out of recycled bicycle tubes, tire tubes, because it's relevant in that market and we can use the combination of crafts, local artists, with messaging that is real in that market going forward.
And now here in New York City, Spring Street, which we renovated about a year or so ago, in the SoHo district. The SoHo district was originally a warehousing manufacturing district 30 years ago and later. And we understand the personality of architecture. We're not asking others to design a Starbucks Experience. We know what the Starbucks Experience needs it to be. That's why this store is designed in the coffee heritage and Starbucks way going forward. We could have done modern, but it would've been the wrong design in this location.
And then going up a few blocks from here, Times Square, where over 2,500 customers come through the door every day, understanding the flagship nature of this store and the opportunity to use real estate to promote Starbucks on Times Square, to get 2 9-foot diameter logo disc within a real estate deal, is leveraging our on-the-ground, New York City real estate people, in-house, with the understanding on how to match the brand, to maximizing the real estate and the personality. And inside this store, leaning in on digital, where we can connect with everybody that Adam was talking about earlier, all the Facebook and tweets that are coming out, come across this 100-inch screen, through there, and the 2 lower screens serve as walk-up opportunities for our customers from every country on the globe to write their own e-mail and see their own picture come up in that same environment the people from the sidewalk come in. And I invite you all to visit them, for those of you who are out-of-town. It's only up here on 48th Street.
The opportunity for us to take this high design and be the retailer who is the desired retailer, through design, good design is good business, is proven out here where we have amazing amounts of opportunity in licensed units. So this is in one grocery store where, as earlier Jeff was talking about. On the right, we have a Starbucks licensed store, does quite well. You see the connection in the thread of the design of Starbucks. They're not controlling the design, we are. They invite us in to teach them how to do better design. But on the left, only 150 feet away, is the Siren's Call specially setup, that Jeff highlighted in his presentation. How can Starbucks have a dominant position in a 65,000 square-foot grocery store like this? It's the power of the brand and also good design, being good business.
Now jumping from New York -- and by the way, before I leave New York, yesterday, we just opened the fifth store in the Herald Square, Macy's flagship, right here on 34th Street I invite you to go up, next to the 100,000 square-foot shoe department they just opened. It's our fifth store and it is a Starbucks Reserve, high-quality store. Five stores, one building. Imagine the opportunity that exists for all of us in the markets that Michelle and Cliff and John just talked to you about, in total numbers.
We're very proud of this store. It's our third store in Amsterdam. This store's 5,000 feet. It is so popular, Howard spoke earlier about Pike Place Market store, it's 41 years old. This store is less than a year old. It is already becoming a tourist stopping point for tour guides and buses because of the value of design and the sheer power of the Starbucks brand going forward. And so we're using local designers, out of our Amsterdam office, in-house designers. To use local crafts and elements, that ceiling detail is all very local and local tiles and, of course, leaning in a little bit on northern European wood design and the way that they use wood at this very intimate bar where we have poured over clover and other experiences right there.
Going south towards France, right outside of Paris, in Disney Paris, we opened a store a few years ago. The right-hand material is -- that looks like herringbone wood. It's actually made out of retired, shaven-down wine barrels from the region. Now many people may not know that, but that's that local relevance and connectivity that we have the capability of doing because of the millions of people they see a year, enhancing the brand and having people go home and frequent Starbucks stores wherever they live. And inside, the wood material over the bar is retired champagne bottle racks, from the region. Local relevance, discipline in locating the real estate and understanding when and where to invest into our locations. It's because of high-quality design and attention to detail that the Louvre, in Paris, allowed us and invited us to come in and build one of these unique stores inside the shopping center in the Louvre. Very few retailers would be allowed. That's the privilege actually to designing a store. And if you see how we bring the same design cues, that are relevant in Seattle and as relevant around the world, into these stores, you'll see how we just did this in renovation of 2 key stores in Spain. And you could see the design cues that are locally relevant and meaningful there.
We take advantage of sidewalks and understanding the local cultures and, of course, the sidewalk coffee culture is very important in Europe. And so we enhance that experience whenever we can. And here again, the intimacy of the coffee bar, leaning in on Italian coffee bars and what Europeans are used to. No 2 stores are alike. Every store is uniquely designed.
And now in Moscow, where we do have design. At this point, how do we bring that culture and their local artists and craftsmen into our Starbucks store designs? And John mentioned Mumbai, in India, and what happened in this store. It's just a unique situation where we are able to present the heritage of our company, 41 years, that will be as meaningful in 50 years as it is today.
Now we're in Asia, one of the first drive-thrus in the Philippines, the quality of the design there. This is sort of an iconic structure in that environment, if you will, because it's the first of its kind. We're very proud of this store.
You know how design is coveted in Japan. This store was not a structure that we leased. This was just an open space in the park that the local authorities put out a request for proposal to design firms, to be allowed to be selected to design and build a structure. Our in-house team was able to win the request for proposal and designed the store based on its environmental consideration. I think the design speaks for itself. As importantly, the American Institute of Architects recognize this as a merit design for us last year.
And because of good design, you are judged by the company you keep. The architect whose famous, Kuma, out of Japan, wanted to design a specialty store for us in the suburban Japanese market. And he did, and this has gone around the world. And its uniqueness, its design approach and understanding that we respect high-quality design and pay attention to detail.
And in Hong Kong, you can see the local elements and things, the abacus and things that we're tying in there as well. And then going forward, in China, that John spoke about, what I wanted to point out in this slide is if you look beyond the Starbucks -- look up, it's a concrete, very basic building. We built the company on highly visible main-to-main locations, and then we've used design to make it a comforting location and area for us to come in, and so we created this warm unique space inside the base of this building. So that's how we can use the discipline between real estate, understanding the opportunity of the real estate and design adjusting, accordingly, for it to work out. And then we use 42-inch tables, the tasting tables and tea tables and understanding the organic nature of China and the Asian culture, and how we bring to life the Starbucks experience. And this is just the engine that we use and the rest of the store has beautiful interior. And understanding the opportunities of providing each and every customer with their day-part need. It could be wanting to come in and out. They could want to sit for a while, in a comfortable chair, they may want to commune at a community table. The local relevance is all about the designers in that market meeting the needs of the customers.
And speaking about new brands and how we weave them through from research and development all the way through to design, and how the packaging design potentially is -- products like La Boulange and Evolution Fresh all tie back to the high-quality nature. We understand the brand filters that we need to have with this particular brand, and more importantly, we understand how they have to tie into what Starbucks stands for, to inspire and nurture the human spirit.
Evolution Fresh retail. We have 4 stores open, 3 stores in the Seattle market, 1 on Fillmore Street in San Francisco. The middle of this slide is a patented juice [indiscernible] wall, where we bring the juices to life in a customized way, using everything we know about customization and presentation to our customers, and we invite you all to visit those stores. These stores enhance the Evolution Fresh growth for CPG.
And Tazo Tea, which was shown a little earlier in University Village, very successful store. All stores were designed in-house in Starbucks, through the brand filters of Starbucks and the high-quality nature of everything we do. Everything is very, very important to us. And so, for us, the difference between mediocrity and excellence is attention to detail, and we're living that daily around the world.
I want to thank you for your time. And I guess we're going to break then, is that right? Okay, thank you very much.
So thank you for your patience. We recognize we're running a little behind. If it isn't obvious, we have a lot of exciting things to talk about. We can't contain ourselves. But take a 15-minute break. If you do can, that would be great. But take a break. I know you've been sitting for a while, we'll be back in 15 minutes and get going again.
You could take your seats please. We'll get started back up. This is the last segment on the agenda today. Probably the one you've most been waiting for. But, before we get started, I just wanted to remind you that this is Troy's section, and then we'll have Q&A. We'll have Troy, Howard and Arthur all available for Q&A, and then lunch is immediately after that, downstairs in the dining room, and if you have your lunch table assignment, on your name tag. Again, thank you, and we'll wait just a minute to people get seated and we'll get rolling with Troy.
Okay, I'll get going while all of you are getting seated. Over the course of the morning, you've heard from our business leaders about the growth and execution plan in each of their businesses. Now I will move us to the final -- very last segment of our agenda today. But, first, I have one more introduction that I'd like to make. Scott Law [ph] is -- please stand up Scott. Scott is the Chief Vice President in our Corporate Finance group. I'd like to introduce you to him, so you know what he looks like. He'll also be available for discussion during the lunch that's coming up.
2011 and 2012, in particular, was a year of innovation, investment and growth. We made a number of important moves during the year, including acquisitions, product launches. We reorganized our business regionally, to pursue the huge global growth opportunity that we face ahead of us. Yet, none of that distracted us from our core focus on delivering against our plans and our commitments. In the year with a great deal of innovation and investment and growth, the words that best describes 2012 is execution.
Starting with the powerful launch of Starbucks K-Cups earlier in the year, to the acquisition of Evolution Fresh and then La Boulange, we continue to execute and deliver. It is that unrelenting focus on execution that give me confidence we've built the foundation needed to deliver on our commitments and meet our ambitions going forward. And it is that focus on execution that produce record results, again, in 2012. Revenues grew 14% in the year, our highest rate of top line growth in 5 years, and we extended operating margins to an all-time high, despite $400 million of incremental coffee costs over the past 2 years.
Revenue growth continues to be fueled by comp growth. Global comps have been remarkably consistent the past 12 quarters, in the mid to upper single-digit range. And the growth in traffic has been driven by initiatives to expand capacity, to elevate customer satisfaction and innovate with relevant new products. Again, we have great focus on, and visibility to, the comp drivers going forward. The strength and consistency of comp growth has driven global AUVs to all-time high levels, which at $1.2 million are almost 25% higher than they were 5 years ago. During that time, AUVs in the Americas and in EMEA have increased greater than 20% each. And AUVs in the CAP region are up almost 80%, as you heard from John just a short moments ago. EPS reached a record $1.79 in 2012 despite some very significant cost in the year, including the commodity headwinds which I mentioned, cost to integrate the new businesses at Evolution Fresh and La Boulange, and the cost to restructure the European portfolio that we announced in the fourth quarter, and that Michelle discussed a short time ago.
Now of all the great results and accomplishments of the past several years, revenue growth, operating margin expansion, EPS growth, the measure that I believe is most significant and that I'm personally most proud of is return on capital. Significant profit growth, combined with very disciplined deployment of capital into the core business, as well as in new business, resulted in ROIC that is now greater than 22%, and will soon be best-of-class in our space. Importantly, that ROIC has come over the same span of time that we've been increasing our capital investment back into the business, and into our future growth drivers. It is that equation that gives me great confidence that we can continue to grow the business, deploy capital and also grow our capital returns.
The strength of our business and cash flow has enabled that capital investment into the business, will also provide for increasing cash return to shareholders. We initiated a dividend in mid-2010, not much before we were last here together and have increased dividend as earnings have grown to remain within our target of 35% to 40% payout ratio. I would expect the dividend to grow as earnings grow going forward. I would also expect, over time -- not immediately, over time, that we would look to increase the payout ratio above 40% at some point. Now in addition to dividends, we have repurchased more than 32 million shares in the past 3 years, and our board recently increased the repurchase authorization, bringing the total now available to 37 million shares.
Now with that as a backdrop, let's look forward. With 18,000 stores in 61 countries, Starbucks is the clear leader in the premium coffee space. Starbucks is the market leader in U.S. premium packaged coffee in the CPG channel, while the Frappuccino is the leading RTD coffee in the U.S., and yet our share of global coffee consumption is less than 4%. The opportunity is huge.
Historically, our growth has been defined by growth in new stores. Over the past few years, we have both raised our ambitions and broadened our growth strategies. The Starbucks store continues to be the foundation of the Starbucks experience and a key contributor to our growth going forward. But that critical growth engine is now enhanced and complemented by other important growth drivers. New product offerings like Verismo, Blonde and Refreshers, adds to both the in-store and the other-store growth. Our portfolio of premium brands both enhances the core and profitably extend it further. Our growing channel development capabilities enable us to expand share of consumption outside of the store, and high-growth markets such as China, India, Brazil, Mexico and others provides us opportunity for growth geographically over time.
We will open 1,300 net new stores in 2013, more than double the number from just 2 years ago. Now that 7% rate of store growth balances speed with quality, as we will never again sacrifice the customer experience nor the return on investment from those new stores for the sake of speed.
We have clear opportunities for new stores in our largest market, the U.S., and the new store growth will be more balanced around the world than ever before. We have clear visibility to a steady pipeline of new stores in the Americas, strong returns in China and an exciting opportunity in India providing long ways for growth in that region. And finally, as Michelle discussed a short time ago, new store growth in the EMEA will be primarily licensed, with captive channel's offering very attractive economics. As you've heard from Arthur, just shortly before the break, our world-class real estate design and construction teams are building world-class stores all around the globe.
Our confidence in the global new store opportunities is fueled by the strong new store returns. We have more discipline and rigor around new store development and the monitoring of new store performance and returns, today, than we ever have before. The most recent class of stores that you've heard, particularly in the Americas and CAP region, consistently have produced great reserve -- returns, exceeding our hurdle rates.
Now beyond building new stores, we're aggressively working to drive higher volumes through existing stores. As you heard from Cliff, our efforts to improve productivity has allowed us to increase traffic even during the busiest morning day-part. In food and beverage innovation, the loyalty program, our digital capabilities, all are driving increased transactions throughout all day-parts. New platforms like Refreshers target new customers for the afternoon, and our new food program, under Pascal, provides the opportunity to both increase the attach rate in the morning and to becoming a meaningful comp driver at midday, the afternoon and in to the evening. As you heard from Jeff a short time ago, we're positioning our Channel Development business to pursue a huge volume of coffee consumption that happens outside of the store environment, at home, at work, on the go, wherever people experience coffee in their daily routine. With a variety of products targeting at home and on the go customers, the Channels Development business is a rapidly growing high-margin business, driving to increase our share of global coffee consumption. And in Jeff's organization, we have built a world-class team to go after that opportunity.
Now critical to our ability to effectively execute on these growth initiatives is the strength of our supply chain. Starbucks' supply chain team is consistently highly regarded and recognized in the industry. Our global supply chain consists of 6 roasting facilities, 2 soluble plants, a tea blending facility, a fresh juicery, bakery facilities, 7 farmer support centers as of next week and much more. That global footprint, and deep capabilities, supports our ability to profitably accelerate multichannel global growth. It is also an important source of profit improvement. The supply chain organization has driven over $100 million in cost efficiencies and savings in each of the past 4 years, in procurement, distribution and manufacturing initiatives, and I expect that team will continue to fuel growth and drive cost savings in the years ahead.
Now after 2 years of significant pressure from coffee costs, despite -- which we continue to deliver margin expansion and our targeted earnings growth, we now have clear visibility into at least 24 months of tailwinds. And current trends in the markets suggest that period of tailwinds could extend well beyond that 24-month period of time. We buy the highest grade Arabica coffees in the world. Because of that, our cost for coffee are based on the C price plus a premium or a differential, as we call it. The escalation of coffee costs in 2010 resulted in $200 million of incremental cost in each of 2011 and then again in 2012. Now coffee prices today are much lower than they were at their peak levels in 2011, although they still remain about 30% higher than they were even in 2010, just a short couple of years ago.
With that said, 2013, this current fiscal year, finally represents the point where we will be getting back some of the increase that we suffered through the past 2 years. Now our needs for 2013 are fully locked, and as you know, we expect $100 million of net commodity benefits this fiscal year. Further, we have now locked about 6 months of our needs into fiscal '14. Our estimate for 2014 is another benefit of about $100 million, reflecting the cost of the 6 month that we've locked so far, as well as filling the remaining 6 months that -- where the C has been trading recently.
Now the green coffee costs that is embedded in that 2014 estimate of $100 million, that it has provided, is still significantly higher than where the market is currently trading, because of our practice of having -- locked throughout that period of time, to lock in our needs and remove the risk from the table. We've been buying as the prices has been declining. So if the C remains where it is now -- if the C remains where it is now, we could see another benefit of similar magnitude, again, in 2015. That is why we have great visibility, for 24 months, of that commodity benefit, and we have some expectation of perhaps 36 months or more of favorable coffee cost environment facing us in the years ahead.
Now I'm going to shift the conversation, and the next few minutes get into the weeds a little bit. There are a handful of common questions about the business that we frequently get from investors, so I owe it to you to spend some time here. If you are not interested in these details, I'll move quickly, so just hang tight.
First is dealing with the shift in equity mix that we spoke about a few times. Now this is particularly relevant right now in CAP, John alluded to this a little bit -- a short time ago, CAP is about 80% licensed today. The rapid growth in China, our company stores in China in particular, will reduce that license mix over time. Now the effective margin of a company store in our P&L might be, by way of example, 25% or so. China is actually higher than that. But with the JV market, such as Japan, where we don't record the store revenue but we do pick up our share of the JV income, the effective margin on our P&L in a business like that, kind of a JV relationship, is well over 100%. And it's a different story, again, with a purely licensed market such the Philippines or some other markets we have. The punchline here being that, as we rapidly grow company-owned stores in China, that growth will slowly reduce the capital license mix, and will end up with a much bigger and highly profitable and high-margin business. But, over time, with somewhat lower percentage margin in that region than we do today, as a result, purely, of that business mix shift.
Now the next topic relates to Channel Development and how we think about it, so how you might want to think about how the segment P&L progresses over time. Package coffee, historically, and today, is the largest part of our Channel Development business, representing more than 1/3 of the revenue mix of that business. It is a more mature category, and so slower growing, and it is also our highest-margin product category. On the other hand, premium single-cup is the fastest-growing part of the business today. Margins for premium single-cups span a wide range, actually, from 20% to near 30% over time, with VIA, Verismo and K-Cups all contributing slightly differently within that range depending on channel ownership, manufacturing cost, partnerships, et cetera. Now please note, these ranges for margins reflect a product category at maturity after the initial couple of years of heavy launch and advertising costs.
We're also getting many questions around what goes where on the Channel Development P&Ls. Hopefully, this will provide some insight. Channel Development revenue is fairly inclusive, but it excludes sales of the ready-to-drink products through our North coffee partnership with Pepsi. Revenues in Channel Development are reflective, net of trade spend. The other large cost driver is other operating expenses, which is largely marketing, as well as our sales teams who are reflected in that other operating expense line. And then G&A and depreciation, as you would you expect, includes the cost that Jeff and his organization and leadership team that surrounds him. Now the bottom of the net segment income from equity investees, that's what reflects our 50% profit share of the Pepsi partnership, not unlike the discussion we had with respect to CAP and Japan. That's a extremely high-margin business because we don't record the revenues of that JV on to our P&L.
Now before I move on, I want to make one comment, earlier, that I think perhaps might have been misunderstood, that something Jeff said earlier today when he was speaking about margin in this business. Let me be very clear, we have the exact same expectations today as we ever have had in recent year or 2 around our margin expectations for Channel Development. Two dynamics in the last couple of years have reduced margin in our formerly CPG segment now, Channel Development, down mid-20s. That was heavily and well, significantly driven by a big escalation in coffee cost, which we saw, and it also has been impacted by heavy launch spend as we've launched VIA, a number of new products at Verismo this year. And we have a number of big product categories that are early in that launch cycle. We fully expect over time that Channel Development recover margin back above 30% again. Once again, driven by both the recovery of our coffee costs over time, which we've seen and we expect and we'll begin harvesting that in the next couple of years, and some of the big investments to get the payoff next year to a minimum. So no change whatsoever in our margin expectation long-term for Channel Development.
Now I'm going to move to some of the most recent initiatives and recap through the highlights earlier. Just to give you some summary for those and perhaps, add in few more points. It's now been a year since we've had the Evolution Fresh business, the integration is going extremely well as I think you've heard earlier. It's ahead of schedule. Construction of a new juicery in Southern California is well underway and we plan to have Evolution Fresh bottled juice available in all company operated U.S. stores by the end of 2014. In the more than 2,000 stores now that have Evolution Fresh, we're seeing a lift both in volume of juice sold as well as average ticket. So the sooner we can roll this across the system, the better it will be.
Sales of Evolution through our Starbucks stores hit the Americas P&L segment, the public segment report, while sales in grocery along with sales in our 4 Evolution Fresh standalone stores hit the other P&L in our other public segment report. Evolution Fresh is now expected to be slightly earnings accretive in this current fiscal year FY '13. It is expected to increase in profitability in 2014 and then beyond.
I am glad you have the opportunity to meet with Pascal today and obviously to try some of the La Boulange products for yourself. Today, as you've heard earlier, we're testing in 40 stores. This spring we'll expand that to 400 stores. And by the end of 2014, we expect to have La Boulange products in all U.S. company operated stores. The full cost of La Boulange and the full benefits of La Boulange are reported in Americas P&L, including the product that goes to the Starbucks stores as well as standalone La Boulange Bakery café. Full integration and overall costs will dilute EPS slightly in 2013. We expect La Boulange to contribute to earnings in fiscal '14 and to escalate its contribution from that point forward.
Now our roll-out of Verismo, as you've heard from Jeff, is progressing quite rapidly. We are already in 7 countries. We expect to have Verismo available in 20 countries over the next 2 years. We do expect over time the majority of sales of Verismo will come through the Channel Development P&L, so our Starbucks stores in all our 3 regional segments will reflect some of the sales and cost of the products sold through those stores. We expect profitability of the Verismo platform to come once we have a solid base of machines in place at home and once the pods then take over as the largest component of Verismo-related sales.
Next, I will discuss our targets for 2013. Today, we are reiterating the guidance that we shared on our Q4 earnings call back in November. Revenue comp growth operating margin in EPS within our stated long-term ranges, which I'll come back to here in just a moment. And -- but first some additional color on operating margin. In the Americas and EMEA in 2013, we expect some slight margin improvement in both those regions. We expect some operating margin reduction in the cap region due to the business mix shift that I mentioned just a short time ago and also to the cost required to accelerate new store growth in China. And we expect 100 to 150 basis points of improvement in Channel Development margins in this current year and that's driven by as coffee cost ease the benefits most strategically and most rapidly in our business, Channel Development P&L, and then somewhat offset this year by the launch cost of the Verismo platform.
Now with respect to quarterly earnings. First quarter earnings growth is expected to be near 15%. That's lower than the remaining quarters due to the big leadership conference that you've seen that was in October. The launch in market cost of Verismo, which we've spoken about, and also just another unusual variance that's related to cost pressure in this particular quarter. I would expect earnings growth over the balance of the year quarter in each quarter to be well within that 15% to 20% range.
Now moving to capital expenditures. We are planning prudent growth in CapEx in 2013. The increase in new stores as well as acceleration of renovation spending this year contributes to the increase. Then supply chain spend will be higher this year as we have 2 new plants under construction in the same year, which is somewhat unusual for us.
Now looking beyond 2013. We are laying the foundation for continued profitable growth. Our long-term target demonstrate our confidence to continue to grow the core business, as well as effectively layering new initiatives and new profit drivers over time.
As I wrap up, I hope that we have demonstrated a few things to you today. First, that our ambition is greater than it's ever been before. Next, that our plans for global, multichannel growth are robust, that we are managing that growth with more rigor and discipline than we ever have. And that we have a strong management team capable of executing those plans and delivering on our commitments.
With that, I will ask Howard and Arthur to join me up the stage to spend perhaps 15 minutes or so in Q&A and then we'll move to the lunch. Howard? And once again, please, wait for a mic to come to you if you've got a question.
This is for Arthur. With regard to the reimaging, you showed some images of the new brand, which is a varied but has some commonality which is where you're trying to take the brand, what percent of store bases is where you wanted to be in terms of that reimaging look and perhaps, what percent is that perhaps or regrettable QSR space that the company was really touchy about, thinking in the way that you came back with a new line and say, "I'd really like to get to that." And then if you could just comment on the pace of reimaging, the returns that, I have a feeling that's something that you don't share a lot about.
Arthur I. Rubinfeld
I think you'll notice from the numbers that we're put out, that the pace is pretty fast in the reimaging. Now we look at renovations differently from short-term renovations, long-term renovations, since 17% of CapEx expenditures fulfillment plan and 3 presidents in the division, real estate construction. Design forward, within the formulas that meet the projections. So we're pretty happy with the pace. If you start to think about it, over the last 2 years, we've covered a lot of stores and we'll continue over time.
Anyone else? Here in front.
Howard W. Penney - Hedgeye Risk Management LLC
Howard Penney with Hedgeye Risk Management. When you use the phrase, step on the accelerator, want to know how fast. My question is, why now? Or that, how fast? Is it that the green coffee cost that you're seeing, could you -- I guess the way I phrase it is if you have a $0.25 million expense base in the next year, should you be doing this? And then the second question is, Howard, we're only given a finite amount time on this earth, does the board have a succession plan in place and what are the characteristics of that? What would be the characteristics of that person that will?
Howard D. Schultz
I'll take the latter question and then maybe Troy can talk about the growth, we can do that together. We have board members here today, who just actually left. This obviously, has been a question that has been asked of me and the board as well as people like yourself. And what the board and I have talked about, first and foremost is, I work for the board, I work for the shareholders and it is up to them whether or not I should continue. Now having said that, I've told my team, I've told my wife, I've told the board that I think the opportunity for Starbucks is greater than it ever has been and I think we have the capability to do the things today we've never dreamed we would do. I have no short-term intent on leaving but I work at the pleasure of the shareholders and the board. In terms of the succession, there's no short-term reason to be concerned about that but I can assure you that the board and I have spent a fair amount of time understanding our fiduciary responsibility to answer that question in the most effective responsible way. But there's no short-term issue that we have to address.
I'll take the other -- much easier one. So let me speak to growth then I'll -- help me out on the spend. When we say accelerated, it's important to note that this been a process acceleration for years. For example, I speak about China. We are -- as John spoke about and Arthur spoke, it is taking us years. Literally, years, 5 to 10 years to build the capabilities, the local talent, supply chain, the local sourcing, the design talent on the ground, as Arthur spoke about, and get ready for the acceleration, fine-tune our models to make sure that we find a site, we can predict volumes, we get the scheduled labor in. So it is not -- we speak about acceleration phase, not as something that's dramatically changing this week. We speak of acceleration as we've been in process based on the validation we stated in our new store economics, the returns we were generating, the development of our own capabilities and talent, both infrastructure and supply chain as well as people talent capabilities. So the broad answer here is, it's a process of acceleration over time, constantly validated by the returns we're seeing. I will tell you, with respect to your point about if we're facing a big coffee cost headwind wouldn't we change? I think the -- I'll answer it this way, less I think about cost specifically, it's more about in a heartbeat, if we see something deteriorating in -- and this was not what we did well back in '07 or in '08, by the way. We couldn't slow it down and stop it quick enough. We are prepared now. We have agreement, we're prepared now. If we don't see the store returns coming in where they should, we'll be the first prepared to miss the historic target in some market region. Because that's not what's going to drive business numbers. What will drive it is the strategy about reaching the consumer, about generating the returns and about marrying that all up with great return of capital moving everything forward. So yes, I think we're more disciplined and we've got our hands on the accelerator and the brake at the same time roughly, I guess, more than we ever have in our past since we're prepared to push whatever lever is necessary. Yes?
Troy, you talked about $400 million incremental commodity, headwinds or tailwinds going forward, how do you define that? I mean does that -- is there any pricing that offset some of that $400 million over the last 2 years or is that just the cost of coffee going higher over the last 2 years?
Right, the $400 million I have referred about is the gross cost of the commodity increase in our P&L, so that is starting in 2010 and over next year is where it's elevated to incremental tax of the cost. Now I'll point out about pricing, we did very little incremental pricing in that span of time. Most people in coffee down the aisle did several price increases and quite significant ones too to keep up with what happened in coffee costs. We did very, very little of that. Like, one price increase over a 3-year span down the aisle as an example. The point of that was we have a lot of levers we could pull in our P&L, efficiencies we can drive, initiatives we had underway, some things we could accelerate to help overcome that and still drive margin expansion despite that and drive our growth despite that. So if the $400 million is gross cost, $100 million that I expect back this year and in '14 and maybe in '15, depending on what we're seeing in the market today, that's also a gross cost. Okay? Yes.
John S. Glass - Morgan Stanley, Research Division
It's John Glass. Troy, going back to your target, and I appreciate all the detail on your green coffee and all the accretion that comes, it seems there's a lot more wins than losses in the column as you go forward. Growth rates, between 15 to 20%, long-term. The consensus is already 14% thinking it's better, what's wrong with that thought? In other words [indiscernible]?
Reinvestment has always been a hallmark of this business. You envision significant amount of the investment against above 20% such way that you could manage that, you let it flow through at some point. You just talk about that philosophically, and I take you back towards -- Howard started this work, we talked about building a dream company, talk about change and investment, and you're right, it has been a constant part of our business to be investing in that excellent growth driver. We have -- the next 2 years we're facing any of those investments we made in the last few are coming to fruition and moving to profitability and there's no questionable increment earnings that will add to our growth rate. We will be constantly searching for what's the right next investment to be, sensible investments that fits within our core, to help drive our volumes forward. I don't know what they may be. We're not back to being able to say we are constantly searching. And again, [indiscernible] nice to begin the day constantly searching or how do we reinvigorate who we are, how do we keep changing, how do we not stay static? Because we think everybody catches us when we do that. All of that bound by a committed to delivering on a consistent long-term earnings trajectory.
Larry Miller - RBC Capital Markets, LLC, Research Division
It's Larry Miller, RBC. Howard, I have a question on the Affordable Care Act. I know that's something that you've spoken about passionately. If you could give us -- well, I was just curious -- I don't know if this is the right forum for it, but if you could give us your updated kind of views -- is there any impact positively or negatively in Starbucks?
Howard D. Schultz
I thought going into this session, if the issue of politics came up, it would not be in the right forum. Actually I'm more than happy one-on-one to have conversations about my strong concerns, about what's happening in United States but I don't think this is a forum for that. We're here to talk about Starbucks. But one-on-one, not a lot of people here, I'm happy to have that conversation.
And I'll -- Larry, let me take the cost one because here's what I'll say about that, we've had a very significant, as you know, long-term commitment to health care to our partner. And as a result of that, we had a big, big expense investment, something we believe strongly in our P&L for many, many years, measure already long before the legislation comes along with $100 million. Now with the legislation, we, like everybody else, are working our way through what needs to change in our programs, so the top wouldn't now legislate it. So as of right now, [indiscernible] I would tell you that we don't have that answer final stage or how we might be able to fit in the legislative world. I also don't have an answer on incremental costs, what might that be something, yes, and something we'll actually talk with you is this fiscal year. The reason that's not so clear is, it may depend on the choice and decisions we make on how we implement it and how we aggregate our current plan, which is something, I think, that's excellent. We feel very good about the 2 new worlds. So no message on cost yet. What I would say is I think because this has been engrained in our business and in our values and in our P&L, for a long, long time, it's likely there could be less of an impact to us than it would be to anybody else out there. Correct?
John W. Ivankoe - JP Morgan Chase & Co, Research Division
John Ivankoe, JPMorgan. In your prepared remarks about -- I think you mentioned that K-Cup sales were 600 million pods I guess over 11 months, and I just wanted to get a sense of…
Howard D. Schultz
John W. Ivankoe - JP Morgan Chase & Co, Research Division
Excuse me, 500 million, my memory. 500 million cups over 11 months, maybe 600 over 12 months, though. But when we think about what the opportunity might be for you to increase profitability of each one of those K-Cup sold specially as your presumably, K-Cup growth continues so either its potential opportunity and actually opportunity to talk about that. Secondly and, Howard, I know you've seen many big markets you're saying your Starbucks doesn't have an opportunity, can you talk about what the ultimate single-cup opportunity might be in Europe at this point and what you're thinking about strategically and how Starbucks can make a big impact in what is already...
Howard D. Schultz
Okay. Sure, maybe I'll just frame the macro issue and give it to you on the specifics. This whole issue about Green Mountain and Keurig has been tossed around by many of you in the media over last year or so. And let me make a statement that might seem somewhat counterintuitive to many of you. It is in Starbucks' interest to see Green Mountain and Keurig succeed wildly in the marketplace. And by that I mean every machine that they sell we're currently picking up 16% share of K-Cups. And if you look at the trajectory of when we started 11 months ago, I don't think they or many people in the outside had any idea that within the year we have double-digit market share. So we are very interested in their long-term success and as a result of that, we are just a in their wake, being able to create incremental revenue and profit with very little cost associated with that part of the business. Now when we negotiated the agreement with Green Mountain, we made it very clear to them that we thought on a global basis there was a very significant opportunity on espresso-based, high-pressure machines and you just had to look at Nespresso to understand that. They probably have by now a $4 billion global business. The opportunity with Verismo right out of the gate to create a low pressure and high-pressure machine at the same time being able to do it that's complementary to our Green Mountain strategy gives us a winning hand, and not only a winning hand today, but a winning hand going forward because of the innovation coming from VIA, which fills a different need state and I think Jeff hit a number of times but let me say it even louder, the plans that we have for the platforms that is currently what you see with Verismo is in its infant stage. As Jeff said, we are mapping out a whole host of innovations that's coming and this is just the first phase. We believe that we have an opportunity to build a multibillion-dollar single-serve business on a worldwide basis. Now not unlike CPG in the traditional form, we have to enter a single-serve market with Starbucks Verismo machines at the appropriate time in markets all over the world where we feel we have the equity of the brand, the talent base and the capability to do that. And we are, right now, in a global audit internally of understanding the sequencing of events that we're going to go through. And if you look at what's happened in this season, and this was not yet discussed, Nespresso has never put any of their machines on sale. Keurig has never put any of their machines on sale. You're now looking at full-page ads in the New York Times every day by Nestle and Nespresso. There's only one reason for that and its Starbucks and Verismo, and the same thing is true with Keurig. We have had a significant impact and we are here to stay and we are here to win and we're going to leverage the national and global footprint of Starbucks stores to be able to introduce, demonstrate and ultimately sell single-serve machines and we are -- the category itself in its early stages and we feel very strongly that we are in a position over a long period of time to win. This is going to be a long race with lots of chapters. I wouldn't draw any conclusions whatsoever about the early stage we're in. I can only tell you, our commitment to single-serve and the long-term prospects we feel as committed and as strong as anything we're doing.
Let me margins following onto that and the cost -- the basic message I have is twofold, really. First is, we are very, very happy with the margin structure we have on the Starbucks K-Cup today. It's a very healthy relationship for us. It started that way. I trust is for them as well. We always felt like we were shaping a win-win with Green Mountain in terms of the economic in that relationships. So the margin structure in our P&L is very complementary with the rest of our channel development business, something that's very contributory, very healthy and very good. And I would fully expect, as with any other product category, that over time with the benefit of scale and a product moves a little bit further up its maturation curve, get pass the heavy on cost in the early days of the launch, that margins will improve over time. So I see both of them dynamics happening and all the more reason why Howard said we're committed to it satellite, we have the relationship and the platform. We expect that we can grow share from a 60% right now to something higher than that. We'll keep doing everything we can to fuel that.
Michael Kelter - Goldman Sachs Group Inc., Research Division
Mike Kelter from Goldman Sachs. One of the big investor concerns that I consistently hear is that you guys may have bitten off a little bit more than you could chew and have so many balls in the air at once that one may inevitably might drop or 2 or 3. And I was hoping to get from you guys some sort of clarification of how you think about that internally and how maybe there might be some early warning signs in place so that you aren't the last to know when a bunch of people walk in your office, throw your hands up and say, "I couldn't do all these." Because you do have more going on than, frankly, than any other company that I cover. And so I wanted to understand how you think about it and how we should kind of assuage our fears.
Howard D. Schultz
I respect the question. I just don't -- I don't agree with it. The Starbucks brand unlike probably other retail or restaurant brands that you cover is in multiple channels distribution, it has been for years. We are a place, a product and now, a category of products in multiple channels and distribution. That isn't anything new. What we're doing, as a company, is looking very -- with great discipline. How do we extend the business that we're in, how do we ensure that we do not embrace the status quo and push for reinvention and enhance the core business and enhance the experience we have with our customers? If I came to you in 1987, with 11 stores and 100 employees, and the lack of leadership, capability and experience that we have and I ask you to invest in Starbucks '87, chances are, you, like almost everyone else I spoke to, would have said no. Because we had nothing to show and didn't have any experience. If I came to you in 1996, when none of us had any international experience, no one in the company, and I say, "We're going to go open our first store in Japan and eventually we'd have thousands of stores internationally." Chances are, you probably would have said, "Good idea, but probably not." Look at the capabilities we have today versus those moments in time. The power of the brand, the multiple channels distribution and the rigor, discipline and experience of a leadership team that you're only seeing a sample of that today. I think we understand the significance of our responsibility to our partners, 200,000 of them and their families, and all of the shareholders domestically and internationally who are counting on Starbucks to meet our obligations. I can only tell you that what you heard today and what we've outlined has been really well thought out with lots of people at the table who have been with us a long time and our board to articulate and author a strategy that we all believe in and believe over time will turn out to be a fantastic return on investment for our shareholders. Now we started out this morning talking about greatness, talking about one company from 1928 left in the original Dow 30. Now I want Starbucks personally to achieve all of its dreams and aspirations within the guardrails of rigor, discipline, thoughtfulness and data-driven decision-making. But I also strongly feel that the company needs to continue to embrace its entrepreneurial DNA and take advantage of the unique characteristics and attributes that we have with as a brand. What I'm -- I traveled all over the world the last couple of years and I've seen firsthand what you heard today from many of the people who presented. The response that John and his team are getting in Asia and China; the store we opened in India, I've been to 100 of store openings and many country openings, I have never in my life under any circumstances seen firsthand what took place in India. A country we've been advertised but never been there, halfway around the world, the pent-up demand, response and the emotional relationship that exists between Starbucks and the world is a treasure chest of opportunities. And there's no one in the company who's going off half cock saying, "Let's do 1,000 things." What we're talking about really is exercising great judgment and expanding in the core businesses that we are already in and looking at acquisitions that we believe enhances our customers' experience, creates incrementality, creates new dayparts and most importantly, can thread into the blueprint of growth and give us an opportunity to build a CPG business that does 2 things. One, a strong revenue and profit center; and then at the same time, it's accretive to the brand. We have introduced hundreds of thousands of people to Starbucks Coffee company who have never been in the store, who -- and got introduced to Starbucks from a bottle of Frappuccino sold at Kroger's or a pound of coffee, and we're going to continue to exercise those kinds of opportunities. I want to say, not defensively, that we're sensitive to the question. We respectfully do not agree and look at the results we've had. In the last 2 years, record results and at the same time, $400 million of cost attached to the P&L because of unexpected coffee costs. We now have the freedom, where that's not going to be that cloud over the company, and we're going to take advantage of what we feel is the time and the place for Starbucks to exercise the kind of entrepreneurial, hopefully, disciplined judgment -- demonstrate to you time and time again that you can rely on us, that we're responsible, that we're thoughtful and we really, really know what we're doing.
I just have a question, it's about the few hours of presentations, how much time and effort building brand and innovation you've added to the brand over time made me look at the comp trends over the last 2 years, this is vast of this transaction. So I'm just wondering, the brand is so powerful, it's ubiquitous, global at this point. At this point, haven't you earned the right to take pricing in line with CPI because it looks like it's below CPI and I'm just wondering what you thoughts might be there.
Howard D. Schultz
I think with the 14 people in America that are unemployed, and $16 trillion of debt and a fiscal cliff that probably will not get solved to our collective satisfaction, this could not be the right time to take price. I mean, I can't think that far in advance, I mean I think we are highly, highly sensitive to the seismic change that could result in consumer confidence and consumer behavior by the unintended consequences that could happen as a result of the Congress and the administration not reaching a compromise and a long-term agreement.
With that, I'll wrap-up for now and appreciate, all your attendance, on a cliffhanger if you join us for lunch we'll have more time with all. Thank you very much.
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