Starbucks (SBUX) gets into delivery business, teams up with Uber Eats

NASDAQ: SBUX | Starbucks Corporation News, Ratings, and Charts

SBUX – Starbucks, through a partnership with Uber Eats, expects to bring delivery to about a quarter of its U.S.-based, company-owned stores by the end of the second quarter.

  • Starbucks, through a partnership with Uber Eats, expects to bring delivery to about a quarter of its U.S.-based, company-owned stores by the end of the second quarter.
  • Delivery is yet another way that the company can lure in diners to spend more money at its cafes, on top of digital and mobile orders.
  • The company already has a delivery program in China.

Starbucks lowered its long-term earnings forecast Friday and outlined to investors some of its growth strategies, including a new delivery partnership with Uber Eats in the U.S. and doubling its presence in China.

The comments came during an investor meeting in New York, a first for CEO Kevin Johnson since he took over from Howard Schultz last year.

Starbucks shares closed 1 percent higher Thursday but are down nearly 3 percent in after-hours trading. The stock, which is valued at nearly $83 billion, has gained 16 percent since the start of the year.

The company reaffirmed its financial targets for the fiscal year 2019. However, it now expects its earnings per share on an adjusted basis to rise at least 10 percent a year over the longer term. Previously, the company predicted 12 percent growth on this basis.

Starbucks said long-term consolidated revenue growth will be between 7 percent and 9 percent.

Starbucks’ new chief financial officer, Pat Grismer, also said its coffee alliance with Nestle will add to its adjusted earnings per share in fiscal years 2020 and 2021, helping to boost its growth to at least 13 percent in those two years.

In May, Nestle agreed to pay Starbucks $7.15 billion in cash for the exclusive rights to sell its packaged coffees and teas around the world.

 On Thursday, Starbucks said it would partner with Uber Eats to bring its lattes to customers’ doors.

“In locations where drive-thru isn’t feasible we are testing platforms like delivery,” Roz Brewer, chief operating officer, said during the meeting.

Starbucks already has a delivery program in China, which caters to 2,000 stores across 30 cities. Through Uber Eats, the company expects to bring Starbucks Delivery to about a quarter of its U.S.-based, company-owned stores by the end of the second quarter.

Starbucks has been struggling to get diners to frequent its cafes at a higher rate. Although sales have been positive, foot traffic continues to stagnate. Part of the issue is the more than 14,000 U.S. locations that the brand operates. Having so many locations can cannibalize sales and lead to fewer transactions at individual stores.

The company has also faced issues connecting with its diners, who have recently balked at some of Starbucks’ limited time offerings.

Delivery is yet another lever that Starbucks can pull in order to lure diners to spend more money at its cafes. Digital and mobile orders tend to bring in a higher check for restaurants, and delivery orders tend to be placed predominantly through these channels.

Other quick-service chains McDonald’s and Yum Brands — which owns Taco Bell, KFC and Pizza Hut — have also jumped into the delivery game, partnering with Uber Eats and Grubhub, respectively.

The pilot program began in Miami, Johnson told CNBC ahead of the meeting. Starbucks saw the transaction volume was there and that people wanted the service, he said.

However, Johnson said, not all drinks will be available for delivery, as they may not travel well. He cited a cappuccino with a lot of foam as an example of a drink that might be suitable for delivery.

“We were very thoughtful about this,” Johnson said.

In China, Starbucks has created spill-proof lids for both hot and cold beverages, tamper-proof packaging and delivery containers that keep hot items hot and cold items cold, said John Culver, president of international channel development and global coffee and tea.

The investor meeting is Johnson’s first since he became CEO.

Johnson said his focus is on “doing what Starbucks does best, and creating big strategic partnerships that complement what we do best, from Alibaba to Nestle with the Global Coffee Alliance and now Uber Eats. ”

Starbucks teamed up with Alibaba earlier this year to deliver food and coffee in China. Starbucks plans to double its presence in China, its fastest-growing market, over the next four years. This would boost its store footprint to 6,000 stores across 230 cities, up from 3,600 stores in 150 cities.

Starbucks Corp. shares fell $1.89 (-2.82%) in after-hours trading Thursday. Year-to-date, SBUX has gained 19.21%, versus a 0.74% rise in the benchmark S&P 500 index during the same period.

SBUX currently has a POWR Rating of A (Strong Buy), and is ranked #2 of 46 stocks in the Restaurants category.

This article is brought to you courtesy of CNBC.

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