Apr 23, 2015 7:41 PM
Starbucks extracts more money with pricier drinks, food
The Associated Press
NEW YORK (AP) Starbucks is extracting more money from customers with offerings like a "Flat White" espresso drink and revamped baked goods that cost a little more.
The Seattle-based chain reported a higher quarterly profit Thursday, with sales jumping 7 percent at established U.S. stores. The company said much of the increase came from higher spending per visit.
New drinks like the "Flat White" espresso drink and Teavana "Shaken" iced teas help drive up sales because they're a little pricier than other drinks, Starbucks Chief Financial Officer Scott Maw said. He noted the company is also charging more for baked goods like croissants, which are being made with new recipes.
"What we're seeing is a premiumization, a trade-up," Maw said in an interview.
In a conference call with analysts, CEO Howard Schultz said the "Flat White" and new cold-brewed iced coffees also help extend the company's position as a "coffee authority."
Dunkin' Donuts, which has been trying to appeal to new coffee drinkers with the introduction of a dark roast last year, said earlier in the day that sales rose 2.7 percent at established U.S. locations.
During its second fiscal quarter, Starbucks said its U.S. sales bump was also helped by a 2 percent uptick in customer traffic, which translated into an additional 10 million visits. That was driven in part by people coming in to redeem the $1.6 billion that was loaded onto gift cards during the holidays.
The company is also convincing people to buy more food in general.
Overall food sales in the U.S. were up 16 percent from a year ago, while breakfast sandwich sales were up 35 percent, the company said. A key part of Starbucks' strategy for continuing to drive up sales is its expansion into the afternoons and evenings, when its stores tend to be less busy. Already, Starbucks says about a third of orders include a food item and that the figure has been ticking higher.
The company is also testing a program in about 30 locations where it sells alcohol in its cafes in the evenings, and has said plans to expand that more broadly this year.
Globally, sales at established locations rose 7 percent during the period. That included a 12 percent increase in Asia, while the unit encompassing Europe, the Middle East and Africa rose 2 percent.
Starbucks still expects global sales at established locations to rise in the mid-single digits for the year.
For the period ended March 29, Starbucks' profit jumped 16 percent to $494.9 million, or 33 cents per share, which was in line with expectations.
Total revenue rose 18 percent to $4.56 billion, more than the $4.53 billion Wall Street expected.
Shares of Starbucks Corp. were up 4.3 percent at $51.54 in extended trading.
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