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Heard on the call: Starbucks Coffee

Heard on the call: Starbucks Coffee

Starbucks discusses VIA, Seattle's Best and remodeling plans

Speaking to analysts Wednesday, Starbucks discussed the growth potential of its new VIA instant coffee and secondary Seattle’s Best Coffee brand, and outlined plans to remodel hundreds of coffeehouses.

Starbucks presented an update of its business in a conference call after reporting a 37-percent increase in third-quarter profit on strong sales for the June 27-ended quarter. Starbucks' latest results.

Howard Schultz, chairman and chief executive of Starbucks, said he was very pleased with Starbucks’ performance, despite the continued challenging economy.

Over the past two and a half years, Schultz has been implementing a turnaround plan that included the closure of hundreds of corporate stores and eliminating thousands of jobs, and cutting costs while the company overhauled food offerings and tweaked the price structure.

“The lessons and learning of the past several years continue to guide the entire organization every single day,” Schultz said.

Details from the call:

  • VIA

Starbucks described the VIA product and Seattle’s Best Coffee as billion-dollar growth opportunities that will serve as “another leg in the stool” in the company’s new business model.

When it was first introduced last year, Schultz said he had promised the product would shake up the $23 billion instant coffee market. Now available in about 37,000 distribution points throughout the United States, the United Kingdom and Japan, Schultz said the instant coffee line is expected to contribute about $100 million to the top line this fiscal year.

“VIA is performing like few consumer products ever have,” said Schultz.

  • Seattle's Best Coffee

The company also plans to expand availability of Seattle’s Best Coffee, which Schultz sees as a way to extend the company’s products “to ubiquitous points of distribution where the Starbucks brand has never lived and would not be compatible with.”

Last year, Seattle’s Best Coffee was available in about 3,000 locations, he said. By the end of the year, the coffee will be found in about 30,000 locations, including Subway restaurants, Burger King stores in the U.S. and Canada, and AMC theaters. The company is also talking to Taco Bell about bringing the coffee to its units, officials said.

Schultz noted that, despite initial fears, neither VIA nor Seattle’s Best have cannibalized coffeehouse sales. Instead, the products have created “new occasions.”

  • Remodeling plans

Starbucks will begin ramping up remodels of existing units this year, Schultz said.

The 16,737-unit coffeehouse chain plans to remodel about 100 stores in 2010, and another 1,000 next year, borrowing successful elements from experimental formats introduced around the globe over the past year, such as the Olive Way location in Seattle, which will offer beer and wine and an expanded menu to boost late afternoon and evening traffic.

Schultz also highlighted a “transformed” unit on Spring Street in New York’s SoHo neighborhood, where sales have improved as a result of faster service, an expanded menu with self-serve options and the availability of the Clover brewing system — equipment that so impressed Schultz a few years ago that he bought the company.

Other highlights from the call

  • The company’s My Starbucks Reward loyalty card program, launched six months ago, has driven significant incremental business, officials said. Customers are on track to load $1 billion on their cards this year, and reloads are up 59 percent this year over last. Sales using the cards are up about 17 percent, and almost 20 percent of all in-store transactions are made with the cards.

  • Starbucks in July launched the availability of free WiFi in stores. This fall, in partnership with Yahoo, Starbucks will launch a proprietary digital network in U.S. company-owned stores that will offer exclusive content, select services, free downloads and local community news. Schultz promised the move would further differentiate the brand from competitors offering “commodity WiFi access.”

  • After testing mobile payment applications in some stores, Starbucks will expand use of the applications in months ahead. Schultz said the mobile phone payment system resulted in a more efficient in-store experience.

Contact Lisa Jennings at [email protected].

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