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Starbucks Corporation (SBUX): What Can You Expect?

Starbucks Corporation (NASDAQ:SBUX) is on a tear this year, climbing 15% year-to-date reaching a new 52-week high on Tuesday. The company has been making plenty of moves, aggressively expanding its store count, particularly abroad, and constantly introducing new products. Here are a couple recent developments that I believe will continue to grow the company going forward.

K-cups

When Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) released its earnings last week, it issued a press release alongside announcing a new 5-year commitment from Starbucks. The agreement expands the portfolio of Starbucks branded K-cups used in Green Mountain’s Keurig brewers, firming up Starbucks position in a rapidly expanding market.

Starbucks Corporation (NASDAQ:SBUX)Starbucks Corporation (NASDAQ:SBUX) CEO Howard Schultz says the single cup brewing category accounts for 25% of total grocery coffee sales. Starbucks sold 850 million K-cups in its first two years – more than any other brand. Growth ought to accelerate as more customers adopt Keurig machines and Starbucks expands its portfolio.

The agreement is clearly a win for Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR). The company’s patent on the K-cup design expired earlier this year, and competition in the single cup brewer space is increasing. By capturing an exclusive deal with Starbucks Corporation (NASDAQ:SBUX) it gains the strongest brand in coffee.

While the financial details of the deal were not released, it likely skewed in favor of Starbucks, which held a huge amount of leverage. Knock-off competitors are coming to market, and Starbucks could even opt to make its own direct competitor.

Late last year, the company released its Verismo single cup brewer. While not an exact substitute for a Keurig machine, its Starbucks Corporation (NASDAQ:SBUX) attempt to capitalize on the high-end of the home brew market. Meanwhile, Keurigs are designed for the average home coffee drinker who drinks just one or two cups.

Many believed the Verismo would strain the relationship between Starbucks and Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR). Those beliefs were proven wrong last week. The deal appears to be a win-win, as Green Mountain keeps its most important brand, and Starbucks improves its position in a rapidly expanding market.

China

Starbucks Corporation (NASDAQ:SBUX)’s international business is increasingly tied to its progress in China. The company is expanding aggressively in the country in an effort to keep up with the growth in the emerging consumer class.

Expansion plans include more than doubling its store count in the country from 2012 by 2015 – from 700 to 1500. As a result, he coffee brewer expects China to become its largest market outside of the U.S. by next year, surpassing its business in Canada.

With such focus on China, the company switched positions of the president of the China and Asia Pacific region, John Culver, and head the company’s global channel development and emerging-brands portfolio, Jeff Hansberry. The company hopes that putting Hansberry specifically in charge of growth in China, will drive better integration of the whole company in the region.

Starbucks Corporation (NASDAQ:SBUX) is looking to continue to grow on the success it’s had in recent years. It added over 500 stores in the Asia/Pacific region in the last year, while boosting same-store sales in the region by 8%. The company’s loyalty program is particularly popular in China. More than 2 million coffee drinkers carry a Starbucks Rewards card – the highest average per store anywhere.

There’s plenty of room for the company to expand in China. Its 1500 store goal by 2015 is just the tip of the iceberg. The company operates over 13,000 cafes in the United States, and operations in China could reach that level in another decade.

As coffee becomes a more popular beverage choice in the region, Starbucks business in China ought to fuel the company’s growth going forward.

Bottom line

With new initiatives abroad and increased strength in the grocery segment, Starbucks Corporation (NASDAQ:SBUX) is poised to continue the growth it’s seen in 2013. The Asia Pacific region will be key to its growth with China leading the way. The company is also starting to make progress in India and, most recently, Myanmar.

Meanwhile, the deal with Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) will keep its coffee popular among the growing K-cup crowd, and add to the new grocery products the company is introducing this year. All said, the analysts’ average 1-year price target of $67.85 appears easily attainable, and expect Starbucks to surpass that mark this time next year.

The article What’s Brewing at Starbucks originally appeared on Fool.com and is written by Adam Levy.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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