Starbucks Rising Thanks to Retail Partnerships

Dec. 1.10 | About: Starbucks Corporation (SBUX)

Starbucks (NASDAQ:SBUX) is seeing rising revenues from its packaged coffee and tea business leveraging strong partnerships it shares with retail companies, particularly in international markets where demand for branded coffee is growing. As the economy improves and consumer spending picks up, we expect further growth in Starbucks’ packaged coffee and tea revenues.

Starbucks sells its coffees and teas through arrangements with grocery stores as well as retailers such as Costco (NASDAQ:COST) and Wal-Mart (NYSE:WMT). It competes with McDonald’s (NYSE:MCD), Caribou Coffee (NASDAQ:CBOU) and Peet’s Coffee (NASDAQ:PEET) in the broader market for specialty coffee.

While we expect Starbucks’ packaged coffee and tea revenues to reach around $401 million in 2011, Trefis members project a much higher level of revenues of around $541 million. The member estimates correspond to a 3% upside to our estimate for SBUX stock.

We currently have a Trefis price estimate of $26.41 for Starbucks’s stock, about 14% below the current market price of $30.76.

The packaged coffee and tea business is part of Starbucks’ specialty operations that help extend the company’s branded products through a number of third-party channels. Our estimated packaged coffee and tea revenues have increased from around $254 million in 2005 to $382 million in 2010. [1]

International Markets Attractive for Starbucks

Starbucks saw significant growth in its packaged coffee revenues from international markets in the last quarter of 2009, driven by aggressive pricing, new packaging graphics, new product sizes and forging relationships with new partners. Starbucks plans to aggressively leverage these partnerships and expand into new locations throughout 2010 and beyond.

VIA, an instant coffee brand launched by Starbucks last year, is also being well received by customers, which has encouraged the company to introduce new flavors. Starbucks claimed that it made sales of $100 million for VIA globally within 10 months since launch. [2]

The Trefis community forecasts that Starbucks’ packaged coffee and tea revenues will increase to $541 million in 2011, a notable jump from our baseline estimate of around $401 million. If we then adjust the remaining periods to mimic our members’ forecasts, this adds around 3% upside to our price estimate.

Notes:

  1. Estimated from data provided by Starbucks in its annual filings
  2. Company press release

Disclosure: No position