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Starbucks Corporation (SBUX): Why Drive Thru Locations Are So Important

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In the video below, Motley Fool CEO Tom Gardner sits down with Starbucks Corporation (NASDAQ:SBUX) CFO Troy Alstead during a recent visit to Starbucks headquarters in Seattle. In this portion of the video, they discuss why drive-thru locations are important for Starbucks Corporation (NASDAQ:SBUX). Alstead says that 60% of new locations opened in the U.S. will have drive-thrus. Drive-thru locations realize higher margins for Starbucks, and allow the company to expand to different areas, such as off-highway locations.

Starbucks Corporation (NASDAQ:SBUX)

A full transcript follows the video.

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Tom Gardner: Can you talk about drive-thru locations and what’s happening there? The majority of your new store openings have drive-thru attached to them. They’re higher margin and I’m curious, is this opening up new real estate opportunities, new locations for you as well? I mean, is this opening up highways and putting you more in the… just a bunch of scenarios that Starbucks Corporation (NASDAQ:SBUX)… when people say Starbucks has already saturated the market, when you opened up drive-thru opportunities, it broadens your opportunities.

Troy Alstead: It absolutely does.  And we are a long ways from saturation, by the way, that’s clear to us. One of the things we learned in ’08 when we had to close some stores and we had to trim the portfolio and really relook at what is the potential depth of penetration in the U.S., even before you think about outside the country, and how can we get to more of that coffee consumption? That opened our eyes up to we had to clean the portfolio up and then we have years and years and years of growth left in the U.S. And some of that, yes, will come from accessing real estate and real estate opportunities that perhaps we couldn’t have got to quite so easily before. Innovative designs, different footprints, depth of penetration. We understand trade areas better than we ever have before, and yes, drive-thrus are an important part of that. We have fantastic economics through our drive-thrus. We’re providing a great experience to our customers who are on the go, they’re moving fast, they want that ability to stay in their car and experience Starbucks Corporation (NASDAQ:SBUX) at the same time.

We have about 40% of our U.S. store base today as drive-thrus.  But going forward, about 60% of the new stores we’ll open are drive-thrus, to your point. It’s about accessing real estate and intercepting traffic and providing customers more access. It allows us to get to some off-highway kinds of locations, for example, that perhaps a stand-alone cafe wouldn’t work so well in. It allows us to get to some of the remote areas around the country, and frankly, coffee is so much a part of people’s daily lives that we have ways to access that experience through our stores to sustain us for a long time

Tom: Would you say that 40% existing locations that have drive-thrus, the max number of drive-thrus for existing Starbucks locations, have you pretty much maxed out the number of drive-thrus you can add to the stores that you already have?

Alstead: Are you referring to in our existing base of stores that don’t have a drive-thru?

Tom: In your existing base of stores that don’t have a drive-thru, have you pretty much added the ones that…

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