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Starbucks plans aggressive retail push

CEO Schultz sees packaged goods division rivaling coffeehouse business

Starbucks Corp. chairman Howard Schultz pledged Wednesday to build the company’s global consumer packaged goods business to the point where it rivals that of its coffeehouse chain.

At the company’s annual shareholder meeting in Seattle, Schultz said Starbucks reached record revenue and profit levels in 2010 after a three-year recovery that included hundreds of store closures, layoffs and slowed growth.

Saying the Seattle-based company is now working from a position of strength, Schultz gave details on the company’s blueprint going forward that includes plans to build Starbucks into a brand that lives comfortably in both the worlds of brick-and-mortar retail as well as its consumer products group, or CPG.

“You’ll be hard pressed to find another company that has been able to live in both worlds,” said Schultz, who is also Starbucks’ president and chief executive.

Schultz acknowledged the fuss made when the 40-year-old brand introduced a new logo that drops the words “Starbucks Coffee.” However, he explained that the move gives Starbucks the freedom to expand its business beyond coffee, opening up opportunities for new products, new brands and new categories of business — some of which that can be tested first in Starbucks stores and then expanded as CPG products in grocery and other retail outlets.

Starbucks’ move into single-cup coffee under its new partnership with Green Mountain Coffee Roasters Inc. is another example of a potentially $1 billion business that will go beyond its coffeehouses, Schultz said.

In addition, the company will provide single-cup brewing systems for both Starbucks and secondary brand Seattle’s Best Coffee and Tazo tea that will be available in more than 500,000 hotel rooms in a relationship with Courtesy Products.

“Put your seatbelts on because the best is yet to come,” Schultz said.

More highlights from the shareholder meeting:

International growth: China is one focus of international growth with Starbucks locations there among the global chain’s highest in average unit volume, said Annie Young-Scrivner, Starbucks’ chief marketing officer. The company plans to have more than 1,500 locations in China by 2015.

“Starbucks China is an incredibly successful business, outperforming the U.S. in terms of average store profitability,” she said. “Even though we are not yet in every city and we’ve spent very little on advertising, Starbucks is recognized as one of the top 20 brands in China. Our ambition is bold; we expect to more than triple our footprint by 2015.”

The company is launching its instant coffee line, Via Ready Brew, in China in April. In February, the My Starbucks Reward loyalty program also was launched there and now has 80,000 members with more than $7 million loaded on their cards.

Jeff Hansberry, president of Starbucks Global Consumer Products and Foodservice, said Starbucks only sells one in every 100 cups of coffee sold globally, a $640 billion category, offering plenty of room for capturing market share overseas across all channels.

Hansberry said Starbucks’ move earlier this year to break off its partnership with Kraft Foods for its packaged coffee and tea products was an important step in leveraging the company’s strengths in growing its CPG business both domestically and internationally.

“We are now in the driver’s seat,” he said.

The company’s branded grocery products, however, are available in only 10 of the 55 countries where Starbucks operates, Hansberry said. “By 2012, we will be ready to accelerate that global expansion,” he said.

Digital enhancements: Calling Starbucks’ digital connections with consumers its “secret weapon,” Schultz said the chain’s leadership in its use of social media positions the brand to move into new channels.

Brady Brewer, vice president of Starbucks Card and Brand Loyalty, said $1.7 billion has been loaded on the loyalty cards globally, $1.4 billion of which is in the U.S., and one-in-five transactions are paid for with the card, a program that began a year ago.

Earlier this year, the company launched a mobile payment system that allows customers to pay using their phones. Brewer said $3 million in payments have been made in the first nine weeks of the program.

Schultz said the company is working on offering rewards to loyalty cardholders for buying Starbucks-branded products in both grocery stores and coffeehouse.

The company also introduced changes Wednesday to the Starbucks Digital Network that will give customers using free WiFi in the chain’s nearly 6,800 U.S. stores free access to subscriber-level content from ESPN, The Economist magazine, Marvel Digital Comics and the Zagat restaurant guide.

Non-traditional growth: Starbucks announced a 10-year extension to its exclusive 20-year agreement with HMS Host as a licensed partner that will bring the brand to airports and travel plazas across the country. Autogrill’s HMS Host operates more than 360 Starbucks locations.

Contact Lisa Jennings at [email protected].

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