Starbucks' growth strategy? Open more Starbucks

You might think there couldn't possibly be any room left in America for another Starbucks (SBUX), but the company would beg to differ.

In fact, CEO Howard Schultz said last week the company is "significantly under-stored" in North America, which is why he wants to add many more locations. The company is planning 1,500 more stores globally this year, including 600 in North America. Many of those locations will be drive-throughs.

"We are a long ways from saturation, by the way, that's clear to us," chief financial officer Troy Alstead told The Motley Fool recently. "We have years and years and years of growth left in the U.S."

Americans don't need that much coffee, do they? As it turns out, this really isn't about coffee at all. Starbucks' expansion plan includes offering lunch and dinner to customers.

Now, combining a boatload of new drive-throughs with lunch and dinner sales starts to sound an awful lot like fast food. And while Starbucks may never turn into a burger joint like McDonald's (MCD), it's clearly got big ambitions to grab more customers at all hours of the day. It's even expanding beer, wine and snacks for the late-evening crowd. More than 1,000 U.S. stores will eventually have what Starbucks calls its "evenings" offering.

About 40 percent of Starbucks' U.S. stores are drive-throughs, and Alstead told The Motley Fool that will increase to 60 percent in the future. Some of those will be in some unusual locations, such as right off of busy highways. And some Starbucks stores are skipping the dine-in experience completely and will only have walk-up and drive-through windows.

Starbucks has also been testing different lunch options and will roll out an enhanced lunch program next year, Alstead said last week on the company's quarterly earnings call. Starbucks "will increasingly be seen as a destination for a quick, delicious and high-quality lunch," he said.

The motivation here is profit growth. Drive-throughs are extremely profitable for Starbucks, and food helped drive average customer spending up 3 percent in the company's last quarter.

Starbucks got burned several years ago with its aggressive expansion plans. The company was too ambitious and scrambled to open as many stores as it could. In in 2008, with the financial crisis weighing on consumer spending, it moved to close 600 stores in the U.S. and lay off as many as 12,000 employees. In an email to employees, Schultz said at the time that the move was "the most angst-ridden decision we have made in my more than 25 years with Starbucks."

In last week's conference call, however, Schultz was quick to point out that the company is not returning to the expand-at-all-costs mindset of old. "This is not 2007 when we we're going to grow the company in an undisciplined way," he said. "But we do believe, in short, that we have a significant level of runway domestically and in Canada."

  • Kim Peterson

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