Starbucks to use Nestle cash for US, China markets

Bloomberg

Thanks to Nestle SA, Starbucks Corp. just came into some serious cash.
With the Swiss food giant agreeing to pay the coffee chain $7.15 billion for the right to sell Starbucks coffee products at retailers, shareholders can expect to receive their portion of the proceeds via buybacks and dividends. But the company will also funnel investment into its two key markets: the US and China.
“The two big growth engines for the company from a marketplace standpoint are the US and China,” Chief
Executive Officer Kevin Johnson said. He pledged to continue to expand in both countries while funding a digital push to counteract slowing US growth.
While growth in China has been explosive, Starbucks saw US comparable sales increase just 3 percent in the latest fiscal year — the lowest rate in at least six years. It’s facing more competition from up-and-coming
regional coffee houses and steep discounting from fast-food rivals. Consumers also are shopping more at home, shunning brick-and-mortar retail for e-commerce.
That’s sent Starbucks shares down 5.2 percent in the 12 months through May 4. On may 7, the stock initially rose as much as 2.4 percent to $59.04 before paring the gain.

Core Market
“They have to really reinstill confidence that they can continue to put up same-store sales growth in the US, which is its core market,” said Bloomberg Intelligence analyst Jennifer Bartashus. “They’ve seen traffic fall off in the afternoon — the strategy now is to get occasional customers back into stores, and into stores more often.”
To reverse the post-lunch slump, the company has targeted customers with personalised email offers while opening up its mobile-order-and-pay system to non-rewards members. Starbucks wants to build “digital relationships” with the more than 60 million monthly patrons who aren’t in the loyalty programme.
“The strategy that we’ve outlined is one that focuses on experiential experience in stores and expanding that,” Johnson said. “We’ll continue to fund our digital innovation agenda.”
Starbucks also wants to improve its stock performance by sending about $20 billion to shareholders over the next three years via dividends and buybacks, up from a previous goal of $15 billion. Boosting technology and locking in loyal customers may keep JAB Holding Co. at bay. The Austrian conglomerate has expanded aggressively in the US coffee market: It now owns Peet’s Coffee & Tea, Krispy Kreme Doughnuts, Caribou Coffee and Panera Bread.