Starbucks (NASDAQ:SBUX) recently announced its quarterly report. During the quarter, the company was quite aggressive about opening new stores. It opened as many as 417 stores with an average of almost 5 stores per day.
Although the company has reported an increase in revenues by 12%, many analysts are claiming that the company has reached a saturation point. However, I believe that Starbucks still has the potential to post higher top line and bottom line growth.
Starbucks' retail business depends a lot on its loyal customers who visit frequently. Its primary customers are high income, young, educated people who look for luxury coffee. So the opening of new stores is the key to success for Starbucks. The table below exhibits the company's stores categorized as company-operated and licensed stores. In light of the company's policies and the growth outlook of the industry, let's examine how the company can benefit from its stores.
Source: SBUX Quarterly SEC Filing
- Average Number of Stores
The average store count for 2013 stood at 9877 reflecting an increase of 6.5% compared to the previous year. In anticipation of double digit growth projections the company is determined to aggressively open new stores. Going forward, I expect that the average number of company-owned stores will increase by 450-500 stores on an absolute basis. So by the end of 2020, Starbucks will be operating around 13700 company-operated stores.
- Number of Daily Customers Per Store
The number of daily customers per store has witnessed a rapid growth during the last three years. In 2013, the number of average daily customer increased to 591, representing an increase of 5 percent from 2012. Going forward, with the increasing trend of coffee consumption, I believe that the company will be able to increase the number of daily customer grow at a rate of 4-5% per annum.
- Amount Spent per Customer Visit
In 2013, the average amount spent by a customer on a single visit was $1.48 which is 6 cents higher than that of 2012. It is worth mentioning here that the amount includes products such as coffee beans, pastries, sandwiches, and coffee making equipment and excludes beverages.
Going forward, it is expected that the amount spent per customer visit on food, coffee beans, and merchandise will increase annually at a rate of 1.5 to 2.0 percent to $1.65 by the end of 2020.
- Royalties as a Percentage of Total Licensed Store Revenues
This represents the fees charged by Starbucks to its licensing partners as a percentage of the total sales generated by franchises. During 2013, Starbucks charged almost 12.3 percent of the total revenues. However, I believe that the company is focused on capitalizing on the growth by adding stores rather than by increasing the royalties. Therefore, the company will hold the current percentage of 12.3 through to 2020.
- Average Number of Franchised Stores
In the first quarter of 2014, the company opened 319 licensed stores while the total number of new stores opened was 417. This shows that the company is inclined towards opening new licensed stores. During 2013, the average number of stores operating under licensing agreements between Starbucks and its various partners around the world was 9350.
Going forward, the company seems to be determined to aggressively increase its total number of stores. Successful execution of business in China and India will be the key to the company's success. For 2014 I believe that the average number of franchised restaurants will be around 600-700 stores and this will bring the total number of stores to around 14500 by the end of 2020.
Growth to be Translated in Revenues
Given the above mentioned growth prospects the company is expected to increase its revenues. The figure above demonstrates the actual and forecasted revenues of the company that were primarily driven by the opening of new stores.
Starbucks is pursuing the idea of expanding through franchises along with company-owned shops. This strategy has yielded fruitful results for its competitors such as McDonald's (NYSE:MCD) and Dunkin' Brands (NASDAQ:DNKN) and will ensure success for Starbucks as well.
The company is quite optimistic about its initiatives in China and India that will hopefully ensure future growth prospects. In the face of competition, the pace of revenue growth has now slowed down in the U.S. However, the company has taken the right steps towards increasing profits as it has been expanding in the emerging markets like China, India and Brazil through the opening of company-operated and licensed stores.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.