SBUX
#Yes, thanks, <UNK>.
We're not trying to signal any trends that we are seeing early in the quarter or post-launch, and in fact, as <UNK> referenced, we have seen an increase in account activity and customer acceptance post-launch.
All we are trying to say is this is a big change.
It is a very positive change.
We're bullish on it in the long term, but it's a big change in customers.
We have got a number of plans in place to leverage the new program and we will keep an eye on things as the quarter moves on, but you notice we haven't changed our guidance for the year and we're not trying to signal anything about intra-quarter trends.
Right.
What I would say, <UNK>, is we expect to continue to make those partner and digital investments as we move through time.
We know that they are driving comps.
We have talked before about the tie between the changes we made about a year ago in pay for our US store partners and the increase in comps that started at the same time, and in fact, what we see is at the stores that have the lowest turnover, they have the highest comp, and we have seen turnover tick down since we have made those changes, so it is all tied together.
It is highly accretive and highly profitable.
So we will continue to make those investments, and as we go into each year, we will talk a little bit about the size of those investments, the impact on leverage, but there are other places in the P&L that we can go to continue to grow EPS at 15% to 20%, which is our long-term range, G&A and COGS just being two of them.
And then (technical difficulty) and the team have done a nice job driving productivity in the stores.
And Mobile Order & Pay has been a key aspect of that to help us with throughput at peak, and as <UNK> said, peak was once again our fastest-growing daypart in this quarter.
Last quarter, it was our fastest-growing daypart in over five years.
And as you know, last quarter is the first quarter we had Mobile Order & Pay fully rolled out, and what we are seeing, based upon the numbers that <UNK> showed, is in those busiest stores at peak Mobile Order & Pay is driving significant productivity and throughput.
So those are all places elsewhere in the P&L we can go to fund the investments we need to drive growth.
Yes, <UNK>, this is <UNK>.
First off, obviously from a CAP perspective, the composition of comp has changed dramatically over the past year with the weighting of Japan coming in.
If you go back a year ago sequentially, Japan was not included in the comp base at all in 2015 and it was only partially included in Q1, and now we have it fully included in Q2.
When you look at the total comp growth for the region, we came in at a rounding basis of 3%.
2% of that was transactions and 2% was ticket.
More importantly, when you go into China and you dig underneath China, we delivered a 5% transaction growth rate across the country.
And when you dig even deeper into that, in our tier 1 and tier 2 cities, where we have over 65% of our stores, we outpaced that 5% transaction growth rate significantly.
So for us, we have great optimism around the opportunity that exists for us in China, as well as in Japan.
We continue to see very strong new-store performance, as <UNK> highlighted, in both China and Japan with record revenues and record sales results and significant return on investment.
So for us, we remain very bullish on the opportunity that exists not only in China, but then also across the entire segment.
And I would add in those larger cities, that's where we have most of our new-store growth targeted, and so that's why you see revenue growth at 18% in the overall CAP segment continuing to drive the profitability and revenue growth that we expect.
Yes, <UNK>, this is <UNK>.
Let me take the first part of the question, then I will turn the second piece over to <UNK>.
Clearly, channel development continues to perform very, very strong for us as a company with the 8% revenue and 17% income growth in the quarter.
We are gaining share across all categories that we operate in, whether it's the roast and ground category, premium coffee, or K-Cups.
This was our 17th consecutive quarter of share growth in the channel development business across all categories.
And in the quarter, we grew 5 times the category average and our shares increased over 100 basis points.
Roast and ground, we now have a 25.3% share growth, and K-Cups share now, as it sits, at 16.3%.
And when you look at the success that we are having in channels, a couple of things are driving it.
First, it is the execution that we are seeing in the stores and the merchandising that we're doing and the fact that we are winning down the aisle.
It is the fact that we are increasing our points of distribution.
We have seen significant success with the larger pack size that we've introduced, and clearly that has been driving our share gains across all our major categories.
In addition, we have taken the My Starbucks Rewards program and introduced that down the aisle as well, where in the quarter we saw an 18% increase in the number of codes that were redeemed, and today we have over 20 million codes entered by over 2 million MSR customers in the CPG segment.
So for us, we are very encouraged by the results that we are seeing in the category and in the segment and we are very bullish on continuing to deliver that double-digit growth for the entire year as we look to finish out the year strong.
Yes, and <UNK>, on your second question, what I would say is in the near term the new Green Mountain agreement doesn't go into place until later this quarter, so not ---+ a little bit more than a quarter impact in this year's earnings.
Over the long term, there could be upside to the range that we gave back at investor day, and I think one of the key pieces to that is all of the international opportunities that <UNK> and <UNK> laid out.
And so, I think as you look at international CPG growth, particularly over the medium term, out a couple, three years once the partnerships get up and running and we get product rolling off the lines, if those things go as well as we expect it, there could be some upside there.
Yes, <UNK>, and just one other thing I would just add on the K-Cup opportunity.
When you look at K-Cups, we grew more than 3 times the rate of the category this past quarter, and the new Keurig agreement gives us an opportunity to extend the agreement, number one, on very favorable terms.
We have improved economics coming in, as <UNK> highlighted, but more importantly we have greater operating flexibility in terms of being able to drive more innovation into the K-Cup category, additional SKUs and new packaging.
And we also have the opportunity to now sell the K-Cups directly into office, into food service, college and universities, hotels, and c-stores.
So, we are on track this year to do about 1.5 billion K-Cups and we expect this category to push near the 20% growth rate for the entire year for us, so very optimistic on the opportunity that K-Cups has.
Thanks, <UNK>.
I have to say I am really pleased with the traffic we are seeing.
The 3% on traffic and the 5% on ticket, as you say, rounding to a 7%.
It is our 25th consecutive quarter of 5% or better comp growth in the Americas.
At the same time, we are seeing very, very strong growth in our new stores and they are adding in total 4% to our revenue growth.
So, things are very, very healthy and we are seeing great progress there.
Mobile Order & Pay just gets better and better as it becomes a normal part of doing our business, and as you heard earlier, the strength in the higher volume stores at peak gives us confidence we can keep growing our capacity and our comp through the stores.
I think the other thing just to add is daypart.
We are seeing growth across all dayparts being led by the morning, so we are very, very pleased with it.
And the EMV or the Chip and PIN is negligible at the moment.
We are in the early phases of rolling it out and we're just working through the ways that that will be implemented across the system, and we are planning for it not to have any impact on transaction speed overall.
And <UNK>, what don't you talk a little bit more about Mobile Order & Pay and what we are seeing.
Yes, thanks, this is <UNK>.
So, first of all, as we mentioned in the remarks earlier, overall average number of [trinitive] transactions for Mobile Order & Pay is 4% across all stores, all dayparts, all store types in the US.
But that's just the beginning of the story with Mobile Order & Pay.
First of all, as <UNK> mentioned in his remarks, over 10% of all orders at our busiest 300 stores are mobile orders, and if you noted, we are seeing mobile orders comprise 7% of all orders at our busiest 1,200 stores.
So when you really look at our busiest stores, Mobile Order & Pay is very important.
And drilling into that further, when you look at the busiest (technical difficulty) peak for those 300 busiest stores, for example, mobile orders are already approaching 20% of transactions at those peak hours.
So, you are really seeing our Mobile Order & Pay benefiting all customers.
It is benefiting the overall store performance in all these stores because of the incrementality of throughput unlock.
Of course, Mobile Order & Pay is allowing customers convenience so they can have that incremental visit, an incremental occasion they wouldn't normally have time for, but it is also driving huge capacity unlock because of the program.
You take 20% of transactions at peak out of the line, out of POS, and you see it benefit all stores and allow customers to benefit from less people in line.
It'll allow partners and customers to benefit from the fact that now our partners can concentrate more of their energy on making food and beverage, on connecting with customers, and that's a big capacity and throughput unlock.
And as a result, we are seeing Mobile Order & Pay meet or beat all of our expectations and grow, as we mentioned, in a way that is very pleasing to us.
And <UNK>, I would just also remind you that <UNK>'s business has nearly 9,000 stores.
It is going to approach $15 billion in revenue this year and it is rounding down this quarter to 7% comps with 3% transactions.
Those are really significant numbers and I'd just remind everyone of that.
Thank you, <UNK>.
This is <UNK>.
It is still very early on delivery, so the headline is that we are continuing to learn.
Yes, the orders are in the morning, like we are seeing in other examples, but, frankly, we are continuing to learn how does this integrate with our technology.
What is the customer behavior.
What is working well.
And so, we are not prepared to talk too much about delivery yet while we are still in the learning phase, but stay tuned for more in the future.
<UNK>, I think what I would say is we continued to grow volume significantly independent of price.
I will say that both in K-Cups and roast and ground, it is competitive.
We continue to gain share in that competitive environment.
We continue to outgrow in food service by many times the industry, so we are able to work through that pricing, but we are seeing volume growth somewhat above revenue growth.
So I think that lines up with your overall pricing comment.
Yes, <UNK>, this is <UNK>.
I would agree with what <UNK> said.
The volumes ---+ when you take pricing out and you just look at total pounds sold, our pounds are outpacing as well.
So, we feel very confident that the business again is very healthy down the aisle, that we continue to take share, and that we are priced appropriately for the consumer.
And we're not only taking it from other premium retailers, but you are seeing the mainstream customers also trading up into the premium segment and trading into Starbucks, frankly.
Any impact from Easter, <UNK>.
No sequential impact to Easter.
We did have a very good Easter holiday, as we did last year.
I'm not sure, <UNK>, whether you were commenting on Easter as it refers to the retail business, but here in the US, early Easter did not have a material impact.
It obviously does change spring breaks, but all in all, it is not significant to the quarter.
I think I'm going to have <UNK> start with the Mobile Order question, I will talk about US comp guidance, and <UNK> can jump in on the operational things we have going.
Yes, <UNK>, this is <UNK>.
So just in terms of the growth in Mobile Order & Pay, let me touch on a couple of things.
One is that you are right, so we had 8 million Mobile Order & Pay transactions per month run rate on this quarter, up from the 6 million the previous quarter.
And so, you get the 40% sequential growth that <UNK> mentioned.
You also have the fact that we are seeing a huge number of new capabilities that we're going to be adding to this, which will continue to grow that momentum and accelerate it.
So one of them is that we added the ability for customers to redeem their Rewards in the Mobile Order & Pay flow just 10 days ago.
We're seeing a great customer excitement about that.
And as I said before, we're going to continue to add a large number of new features for Mobile Order & Pay, including favorite stores, favorite orders, and recommendations in the flow, all of which will contribute to the growing acceleration of Mobile Order & Pay as we move over time.
And then on guidance, what (technical difficulty), <UNK>, is we're still saying somewhat about mid-single digits for the year.
That obviously relies on good performance in the US business and I will let <UNK> talk to some of the things we have lined up for the back half of the year.
It expects good performance in CAP as we look at the back six months and some recovery in EMEA.
But as we look forward, we have a number of things in each of those geographies as the summer comes up to drive additional transaction, additional comps, and additional profitability, and I will let <UNK> speak to the (multiple speakers)
Yes, thanks, <UNK>.
It really does [start] Mobile Order & Pay.
We have got our new Starbucks Rewards, and we're really excited by the early sign-up and contribution that is going to come from that.
We have a fantastic season ahead of us, building on the strength of last year, whether it is Frappuccino or later on in the summer with our cold brewed coffees, our iced coffees, and our recent introduction of Nitro into select stores, and we are in the early phase of that.
And I think our Teavana iced teas are set for a fantastic season.
And all of that is going to be complemented by the continued growth we are seeing in our food in the US now, where we're up to 20% contribution coming from food and that's the first time we have seen it there, and we continue to see growth in our cold beverages, so we have got a great season ahead.
<UNK>, maybe talk a little bit about the new Rewards program.
Sure, and let me comment, first of all, that we're a little over a week out from launch here, so these are very early days, but they are very encouraging nonetheless.
In addition to the sign-ups we are seeing, the new people raising their hands to join, we are seeing a couple other very encouraging things.
Spend per member is up across the board, and I know somebody is going to ask this question, so let me try to get ahead of it here.
We do obviously track all cohorts of people in our Rewards program and they are the people who are going to be better off by the new rules.
They are going to be the majority of people who are more or less the same and a small minority of people who will earn Rewards a little bit slower.
All three of those cohorts are up in terms of spend so far, and we see absolutely no difference in the percentage among those three cohorts.
So we are not seeing any of the noise that has been speculated on coming to bear.
So very encouraging news there, and we will be keeping a very close eye on it and obviously there's a lot of unlocked that comes with the new Rewards program as well, too.
It is enabling the stars as currency initiatives because of the lowering of the denomination of the star.
We have a lot of runway ahead with this and we are very excited about what it will do in the long term.
Sure, it is a multiple part question.
Let me see if I can remember all of them and get through it.
With the program, the timetable for the actual product facing forward to customers will be late this year.
The product, obviously, will work just like the current product works, except it will bear the Visa mark on it and it will be a general-purpose stored-value card that works everywhere.
We will be announcing all the details about how to sign up and the exact value proposition as we get closer and have a way for customers to sign up, but we are on track to do it this year.
With regard to whether or not that was the primary motivation, the answer is no.
There are a number of different things we're going to be ---+ able to do as a result of lowering the denomination of a star.
So you can expect this to be the first of a number of partnerships that you will see down the road in the future.
Yes, I just want to remind.
We launched it a week ago, and so the first-week metrics that <UNK> talked about are encouraging.
But there is obviously a lot of customer spending and behavior that will happen over the coming weeks, and given the importance of the MSR program and the significance of the changes, we think broadly beneficial, but to some customers, they may not feel so benefited, we want to just make sure we communicate to you guys that there could be some noise.
We are not seeing it yet.
We will see how the quarter plays out.
So, nothing in the early results, but this is a big deal for us and we want to make sure we get it right.
<UNK>, can I add something from South Africa about that.
Yes.
First of all, I have been very quiet on the phone because you guys are doing such a great job, but it is very odd sitting here in South Africa listening to this.
But I think the answer to the question is with great transparency we just want to make sure that everyone understands this is a complicated change for our customers, lots of training for our people, and I think the better part of valor is just to say to you up front that there could be some noise in the quarter.
We're not signaling anything, but as <UNK> said, we're building something so significant over the long term that I wouldn't be so concerned about noise in the quarter, if there is some, because what is happening here is we're building something so enduring and so unique that I think it is going to be one of the most significant changes to the equity of the brand, customer experience.
And as <UNK> said earlier, the opportunity for Stars Everywhere in terms of the ubiquity of people using that debit card and the only way they can bring back stars and get Rewards to Starbucks is going to be a significant flywheel effect on our overall business.
So, I think we just wanted to be open with you about the complication and the degree of this significant change, but the long-term is so beneficial to our customers and obviously to our shareholders.
Thanks, <UNK>.
I will take the first part of the question.
I think you can expect to see margin expansion in that same range that you saw in the first half, which is obviously very strong at 250 basis points.
I guess it's just the definition of moderate.
We continue to see revenue growth opportunities, we continue to take share, and we continue to do that at highly profitable overall margins.
And so, we see that continuing throughout the rest of this year.
And although the Green Mountain change doesn't impact us too much this year, just because of the timing of it, that has a chance to help us as we look forward into next year.
And I will let <UNK> answer the manufacturing question, correct.
<UNK>, I am not going to disclose who we are working with from a manufacturing standpoint, only to say that we are in a position now to launch the Nespresso-compatible pods in both our retail stores, as well as through the CPG channels across the UK and France later this year.
We are focusing first and foremost on Europe because there is 25 million machines of Nespresso machines that are installed there.
It is a very similar size right now in comparison to the number of installed base on Keurig here in the US, and we feel there is a significant opportunity to build this capsule business similar to the way we've built the K-Cup business here in the US.
And as <UNK> highlighted on his comments, single serve represents 40% of the coffee consumed in home in Europe and nearly 50% of our Starbucks customers have Nespresso machines in their homes.
And so, we see this as being a big opportunity.
Beyond Europe, the big size of the prize is going to be in CAP and more importantly in China.
And we are going to continue to look at how we expand the single-serve opportunity as the only truly leading global premium coffee brand in Asia across our store footprint and really go after this opportunity as well.
So, looking forward to the growth opportunities that exist both in Europe, as well as in Asia, around the single-serve opportunity.
Sure, <UNK> <UNK> here.
We're in the process of rolling that out and you will see that across the remainder of this year.
What we are talking about doing is basically stepping up our game with regard to how we communicate with customers and there are a couple of key components to it right now.
To date, we have really communicated in a targeted way via email, and as we progress through the year, you're going to begin to see the targeted communication emerge within our digital platforms, specifically our app, with recommendations.
So, we don't catch people in the moment right now.
We will be catching people in the moment as time goes on, so that's a very important piece.
We also are going to be able to use triggers and to target much more individually than we currently do.
We have limitations because of the technology right now in how many different messages we can put out.
Those limitations go away with the investments in technology that we have already made.
So you will see from a customer perspective more relevance, more targeted messages, some of which will be offers, and that will allow us to basically manage those more economically in the future.
Thanks, <UNK>.
No, there is no big upfront investment from a technology standpoint or from any customer standpoint.
What I will say is we are obviously investing in marketing and in-store training for partners and messaging for customers, just to make sure everyone is crystal clear on the program.
And then as we talked about in our February call, we have a number of contingency plans and things that we can do with some of the personalization capabilities that <UNK> just talked about to target any cohorts of customers that may be displaying lower frequency or different types of behavior.
But those won't be expensive.
They won't be a big impact in the quarter.
I think the only reason we said over time is obviously we expect the momentum to build with this program.
Customers will become familiar with it.
They will get used earning more stars.
We'll layer in the Chase opportunity and some of the other Stars Everywhere opportunities and those will really build.
But it will be profitable immediately and build over time.
If I could add to that.
One of the things when you sign up new members, you don't necessarily see all the value in the first few weeks or even first few months of somebody signing up.
It is something that lasts over time.
So as you build the membership of Starbucks Rewards, that is a benefit that keeps on showing up in the results for not just months, but years, to come.
We said that breakfast sandwiches were up nearly 30% in the quarter year on year.
Food overall was up 16%.
Lunch contributed an 18% growth, so you are absolutely right we're getting some uplift on ticket, plus better attach from food, but by no means is that accounting for all of our growth.
We continue to focus on price giving us between 1% and 2%, and the rest is from either the swift movement to a higher ticket product or increased attach, and we are seeing a mix of all three of those.
And <UNK>, I would just add in the morning daypart, the breakfast sandwich is a meaningful contributor, but really it is all three of those items that <UNK> outlined, a bit of price, premiumization or upleveling, and attach at morning and at lunch both very strong.
Yes, thanks, R.
J.
This is <UNK>.
<UNK>, can I just ---+
<UNK>, can I lead with that and just give it right back to you.
Sure.
I think <UNK> should answer the question specifically, but the thing that I would mention is throughout Asia and specifically Japan and China we have a very, very large strategic advantage in that distribution in terms of educating the consumer, demonstrating the product, and really, I think, leveraging our ability to educate the customer the way we have just with regard to our basic coffee business.
We're in a unique position to leverage the national footprint we have in Japan, in Korea, and obviously in China.
And it will be very difficult for the single-serve companies who are in the machine business to really create national distribution.
So, our ability to leverage the equity of the brand, the in-store experience, puts us in a lead position, and I think that, as <UNK> said in his comments, there is no global superpremium brand of coffee specifically that doesn't exist at all in Asia, other than Starbucks.
So we're in a very unique position as we have to train the customer, educate them on all things coffee, and as the category evolves, and it certainly will, the biggest prize for single serve ultimately is going to be China.
And our store base is going to give us a tremendous advantage, not if, but when that market emerges.
<UNK>, go ahead.
Yes, and the only thing I would add, <UNK>, to that is the fact that the single-serve business is really ---+ does not exist in China, nor in Asia, to any significant degree.
So this is all white space.
And as <UNK> said, we are truly the only global premium coffee brand both in Japan, Korea, China, or the rest of Asia that is going to be able to leverage a retail footprint and an awareness and a trust level with our consumers on educating them about in-home consumption of single-serve coffee.
So, we are building plans as it relates to going after this opportunity and we will follow up with you on what those plans are going to look like in future calls.
Before we end the call (multiple speakers)
It wasn't too long ago that the ---+ go ahead.
I am sorry.
I'm sorry.
I was just going to say it wasn't that many years ago where people would not walk in the street holding a Starbucks cup, because they might lose face in Asia.
Now, obviously, throughout Asia, specifically Japan and China, that is exactly what is going on.
It wasn't that many years ago where their morning ritual did not exist in many of those countries, and other than China, that now exists and we're beginning to see it in China.
So single serve is going to be a major business throughout the region and we're going to be in the winning position to take advantage of it.
<UNK>, I thought before we ended the call we'd just turn it back to you to see if you had any final comments.
I would just say now that we have opened here in South Africa, this is our 71st country and market, I just wish that the people listening to the call could witness firsthand what we have seen now throughout the world.
And that is the universal acceptance of Starbucks Coffee Company and what we are doing in store, the relationship we have with our partners, the relationship we have with our customers, and I have said for many, many years these are still the early days of the growth and development of the Company, and despite with 24,000 stores globally, I have never been more enthused, especially sitting here so far away from our home in Seattle and seeing exactly what we started in the early years, and that is Starbucks being the third place between home and work and delivering an extraordinary cup of coffee.
And it is just a wonderful opportunity for us once again to open up a new market, especially here in South Africa.
Thank you.
