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Howard Schultz – chairman and chief executive officer
(Acknowledges international business partners, veterans and military spouses, Starbucks Armed Forces Network, Starbucks College Achievement Plan students, and Starbucks partners (employees) in attendance with 2,800 at McCaw Hall in Seattle)
23 years ago, at the time of our IPO, we had 125 stores and a market cap of $250 Million. Today there are 22,000 stores in 66 countries. Starbucks has reached a record high market cap of $70 Billion and stock price growth of 1,200% and 13x shareholder growth since 2008.
Over the years Starbucks has had five 2-for-1 stock splits. The Starbucks Board has approved our sixth 2-for-1 stock split for our shareholders since we went public.
Partner investments – Financial performance of our company and building shareholder value is linked to creating value for our people: over $233 Million invested in health care benefits for our partners (employees); over $210 Million in Bean Stock gains, and more than $1.2 Billion since inception of the program. $73 Million matched this year in 401k contributions.
Starbucks College Achievement Plan – Nearly 2,000 partners enrolled, and today we are announcing our goal to graduate 25,000 partners by 2025.
Veterans hiring initiative – Starbucks is committed to hiring 10,000 veterans and military spouses by 2018 and has already hired 3,300.
Scott Maw – chief financial officer
2014 represented another record year for Starbucks coffee company by every relevant measure. We saw records in revenue, cash flows, and operating margin and our shareholders benefited from this performance in a significant way. Importantly, we have always been focused on balancing this financial growth with the right level of investments in our people, our businesses and our communities. This broad balance is absolutely critical to – and inseparable from – the financial results of our operations.
Revenue growth: Revenues reached $16.4 billion and total retail transactions across the globe for 2014 were an incredible 3.6 billion. At that rate, our partners are serving nearly 7 thousand perfectly prepared, hand crafted beverages and high quality food offerings to our customers every minute of every day.
Comp growth: 20 consecutive quarters of comp growth of 5% or greater; In the US, our largest market, our comp growth averaged an impressive 7% over this period, which is again nearly double that of our peer group.
Starbucks Seven Strategies for Growth
Beto Guajardo – senior vice president, Global Strategy
Our role here today is to frame the robust strategies we’ve put into place to deliver the kind of growth you’ve come to expect from Starbucks.
1. Be the Employer of Choice
Starbucks has become one of the world’s most beloved and trusted brands, and we can tell you what creates our brand strength. In a survey of all the people who consider purchasing at Starbucks because of brand appeal, they do so because: 47% love the Starbucks brand because of the connection between partners and customers; 27% say they love the way Starbucks treats its people; 26% love the coffee.
2. Coffee Leadership
Katie Seawell - senior vice president, Category and Brand Marketing
Key to our success is investing in our partners and with coffee we have the opportunity to ignite our partners’ passion every single day. There’s never been a more exciting time to be in specialty coffee, an industry we helped establish over 40 years ago and have been innovating in ever since.
Customers around the world are more curious about where their coffee comes from, how it’s roasted and how different brewing methods can change the taste of their beverage. Our coffee journey starts with farmers and their families who work every single day to bring us the highest quality arabica coffee.
I am excited to share with you that for the first time (a first for any company) this year 99% of Starbucks coffee will be verified ethically sourced. Why not 100%? That last 1% is difficult, but very important and allows us to use our scale for good. In places like the Congo, where in partnership with East Congo Initiative, our purchase power can help to develop a coffee supply chain. All of this work directly benefits the local economy and its people. None of this would be possible though without the partnerships that help create long term, systemic change. In coffee, our work with Conservation International is unprecedented. (Video)
3. Grow the Store Portfolio
John Culver - group president China/Asia Pacific and Channel Development
Starbucks coffee is served to more than 60% of the world’s population across China and Asia Pacific Region (CAP) and in channels outside our stores. Over the next 5 years, we will grow from 22,000 stores to over 30,000 stores around the world. In the CAP region, this week we opened our 5,000th store. Over the next 5 years this region will grow three times in size and Starbucks store footprint will double to 10,000 stores across our 15 markets.
Over half Starbucks new store growth globally over the next 5 years will come from the CAP region, led by Japan and China. Japan was Starbucks first market outside North America, entered in 1996. Today approaching 1,100 stores in Japan and will soon assume full ownership of the market. China is Starbucks fastest-growing global market. In the next few weeks we’ll open the 1,600th store and will have 3,400 stores there in the next 5 years. Shanghai has more Starbucks stores than any other city in the world in which we operate.
We are seeing tremendous anticipation for Starbucks first international Roastery as we look for potential sites in Japan and China.
4. Create New Occasions to Visit Stores
Cliff Burrows - group president the Americas and Teavana
This year has been a tremendous year for growth – in fact probably the best. We are currently at just over 14,000 stores across the Americas and that number will grow by 3,500 over the next 5 years.
The store experience is a direct reflection of how our customers are attracted to all the brand has to offer, including products as well as speed and convenience in traditional stand-alone stores as well as our drive-thru stores, which account for more than 40% of U.S company-operated stores.
We will be introducing a new smaller footprint with a select range of products; take away only –Express format – focused on meeting the demands of customers in urban locations during the morning peak. This new format will open up new doors in places we haven’t been able to go before. Today, I am pleased to announce that our first of this new format will open next quarter in New York and we are on track to open 4 more by the end of the year.
By the end of 2019 we will double food sales in the Americas through breakfast, lunch, snacks and the Evenings program. We will grow our food business in the U.S. from 18% to 25% of revenues by the end of 2019 adding an additional $2 Billion to our base business.
5. Consumer Packaged Goods (CPG) Brand Growth
Michael Conway - president, Global Channel Development
Our mission in Channel Development is to connect people around the world to Starbucks where they live, work and play. Our products are distributed in 39 countries and there are more than 1 Million touch points outside of Starbucks stores. Only 20% of all the coffee consumed in the U.S. is in retail cafes. The remaining 80% of all coffee occasions are done outside of cafes.
The fastest growing segment of the at-home coffee market is single serve, which in the U.S., is led by K-Cups. Since the launch of K-cups in 2011, we have shipped 2.3 Billion cups.
We are the only premium coffee brand that has the universal awareness and appeal necessary to succeed on a global scale. This is especially true in Asia where distribution through Starbucks stores is an asset and the single cup category has yet to begin. To that end, international expansion is an important part of our CPG strategy.
The ready to drink (RTD) coffee and energy drinks category is a $6 Billion market and slated to grow by 20% over the next three years. Pleased to announce today that Starbucks has entered into a strategic business agreement with Tingyi Holding Corp. one of China’s largest food & beverage players.
6. Build Teavana
Annie Young-Scrivner – president, Teavana
Tea has been a part of Starbucks history since our first store. Tea is the second most consumed beverage in the world only after water, and has a global category size of $125 Billion. Americans drink 800 Million servings of tea per week and iced tea is the number one beverage during lunch time.
Our vision for Teavana is to transform and up-level tea consumption around the world, just like we transformed coffee more than 40 years ago and continue to innovate today.
As we are building the brand (with Teavana Shaken Iced Tea, Teavana Oprah Chai and our Teavana hot brewed teas in Starbucks stores) we are also giving back to communities. Our partnership with Oprah Winfrey has generated millions of dollars that are supporting young women in areas of education and mentorship.
Out of the 66 countries where Starbucks does business today, Teavana is currently only in 7. A large portion of the $125 Billion category resides in Asia and we are excited to bring tea innovation into this region while respecting its heritage. I am pleased to share with you today our Starbucks stores will be converting all of our teas in China and Japan – and across the entire region – to Teavana in 2016.
7. Extend Digital Engagement
Sharon Rothstein - global chief marketing officer
Our loyalty and mobile experience, and the value and benefits it unlocks for our customers, begins with our Starbucks gift cards. One in seven adults in the U.S. received a Starbucks gift card last holiday.
When customers register their gift cards, they become members of our My Starbucks Rewards (MSR) loyalty program. With the growing benefits and values of our loyalty program, we’ve seen MSR active membership more than double in three years, with more than 10 Million active members today in the U.S. alone. Mobile spend from MSR members has grown even faster, at nearly 50% per year to $1.5 Billion in 2014.
Adam Brotman - chief digital officer
We’ve built the most successful ecosystem of any retailer in the world. We have more than 14 Million active users of our mobile apps and process approximately 8 million mobile payment transactions per week. This translates to roughly 18% of all transactions in our stores which is more than half of every card transaction - all done through mobile. This significant growth demonstrates the power and momentum of our mobile ecosystem.
Mobile Order & Pay, a feature we rolled out in Portland a few months ago, just expanded to Seattle and the Pacific Northwest yesterday. It’s now in over 600 stores. (Adam demonstrates convenience of Mobile Order & Pay) Customers who have experienced Mobile Order and Pay are giving us some of the highest satisfaction scores with their experience that we’ve seen to date. We are on track for a national roll-out in 2015. We will also be rolling this out to Android users later this year. Internationally, we intend to launch Mobile Order & Pay in Canada and pilot the program in the UK as well.
Ultimate convenience for customers is delivery. I have two announcements today about delivery: First, later this year we are going be piloting delivery in collaboration with leading on-demand delivery provider - Postmates and we're going to do it here in Seattle. (Adam acknowledges Postmates CEO Bastian Lehmann in attendance). The second announcement relates to the other delivery format we’ll test and we’re calling it “Green Apron” delivery. In dense, urban environments like office buildings, we believe we’ve cracked the code on another way to bring Starbucks to our customers, and that’s to have baristas on hand to provide an exclusive service within an office building – this will be great in places like New York City. That’s exactly where we plan on launching later this year. We will have details about both of these delivery methods closer to launch.
This is a much more difficult and different conversation than we have had at any other time in the history of our company with regard to an annual meeting and certainly very different in the last couple of hours. And the question is do we have a right to bring this into this meeting and to share with you and discuss what we think we should do in terms of our obligation and responsibility to our people, to our communities and to all of you. The first open forum that we have in Seattle in December was unscripted. Every open forum that followed in Oakland, Los Angeles, St. Louis, New York and Chicago was also unscripted, but every one of them including the one we had last week with Chief O'Toole at the 23rd & Jackson Street store in Seattle, where she and I did it together. Every one of them has been exactly the same.
What I mean by that is we created a safe environment where people could share their vulnerabilities, their life experience. And I must say at times tragic examples of racial injustice, racism, discrimination and then with many times, where I felt I had to fight back the tiers and what I was listening to and what I was trying to absorb. What you do when a young man in St. Louis, an African-American young man stands up in front of 300 people and says I made it to 20 years. I don’t know if I will make it to 21. You can’t be a bystander when you hear that.
What do you do when an African-American single mom in New York stands up in front of another 300 people and says before my 10-year-old son goes to school I make absolutely sure he doesn’t have any bright clothes on. And I turned and asked her why, because I don’t want him to draw any attention to himself. And I turned to the white woman next to her. And I said you have children. She says yes. I said have you ever worried on any level what your kids were wearing to school? What I learned in this emotional journey over the last few months was the great need for empathy, compassion, understanding and metaphorically trying to put your shoes, your feet in someone else’s shoes.
So, the question in front of us is what are we going to do? Over the last 10 years, we have had the benefit – I have had the benefit of having Mellody Hobson on Starbucks board. She is an African-American woman. She has risen to the heights at the highest level of corporate America. She has been an advisor and a counselor to me on a number of issues, but specifically this issue as I and the company try to navigate through the process of not being a bystander and effectively and respectfully trying to make a difference in the communities we serve. I have invited Mellody to speak to you and share her own life experience with you.
Mellody Hobson – Starbucks Board Member
Finance executive Mellody Hobson, a member of the Starbucks Board of Directors for 10 years, says speaking openly about race makes for better business and a better society even though the subject of race can be challenging to discuss.
If you ever have the opportunity to be involved in a hiring process or an admissions process, you can be color brave.
If you have the responsibility to organize a brainstorming session at work or at school, you can be color brave.
If you’re trying to solve a problem and you look around the table and only see the same kind of people with the same kind of background, you can speak up and be color brave.
My challenge to you is simply this: observe your environment. At work. At home. At school. And if you don’t see any diversity, work to change it. Invite people into your life who don’t look like you or think like you or come from where you do—people who will challenge your assumptions and help you grow as an individual. You might gain powerful new insights about the world. And by the way, this challenge cuts both ways and applies to people of color as well—because I have plenty of friends who only hang out with black people. We people of color have a responsibility to stand up for diversity too. The more progress we make, the more hopeful the message it sends to the next generation for whom we have an obligation to be role models.
The idea of being the “land of the free and the home of the brave” is woven into the fabric of America, because throughout history, as a people, we have never shrunk from the challenges we face. We show courage. We take action. So let's be bold. Let’s make sure we’re audacious enough to not leave anything on the table. Let’s make sure we’re daring enough to not leave anyone out. And let’s make sure that we’re not being color blind; but being color brave enough to ensure every child believes their future matters and their dreams are possible.
Special guest – Common
Common is an American hip hop recording artist and actor from Chicago. Common debuted in 1992 with the album Can I Borrow a Dollar? Common won the 2015 Golden Globe Award for Best Original Song, and the 2015 Academy Award for Best Original Song, for his song "Glory" from the 2014 film Selma, in which he co-starred as 1960s Civil Rights Movement leader James Bevel.
How can we use our scale for good?
Race Together is an initiative from Starbucks and USA TODAY to stimulate conversation, compassion and action around race in America. Friday (March 20, 2015) 2 Million printed copies of a special section (eight-page insert) will be distributed in all USA TODAY papers, and in every company-owned Starbucks store in the U.S.
Starting this week, our partners began sharing the sentiment “Race Together” by writing it on cups around the country in our stores. If a partner doesn't want to write that on a cup, they don't have to. If a customer doesn't want those words written on a cup, they won't be. We know that creating conversation is just a first step.
These are the 6 million young people who are age 16-24 and who are not working and not in school, 50% of which are minorities. I believe they also represent an opportunity for Starbucks. So today, I am very proud to announce that Starbucks is making a commitment to hire 10,000 opportunity youth by 2018.
Musical Guest – Jennifer Hudson
Hudson rose to fame in 2004 as a finalist on the third season of American Idol. As an actress, she made her film debut in Dreamgirls (2006), for which she gained worldwide acclaim and won the Academy Award for Best Supporting Actress, a Golden Globe Award, a BAFTA Award, an NAACP Image Award and a Screen Actors Guild Award. In January 2015, it was announced that Hudson would be making her Broadway debut in a revival of The Color Purple.
WOW! Hudson singing "Titanium"
12:59 PM Q & A
1:27 PM Starbucks 2015 Annual Meeting of Shareholders concludes
Certain statements contained herein are not based on historical fact and are "forward-looking statements" within the meaning of the applicable securities laws and regulations. Generally, these statements can be identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "feel," "forecast," "intend," "may," "plan," "potential," "project," "should," "will," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based on information available to Starbucks as of the date hereof, and Starbucks actual results or performance could differ materially from those stated or implied, due to risks and uncertainties associated with its business. These risks and uncertainties include: fluctuations in U.S. and international economies and currencies, our ability to preserve, grow and leverage our brands, potential negative effects of material breaches of our information technology systems if any were to occur, costs associated with, and the successful execution of, the company’s initiatives and plans, the acceptance of the company’s products by our customers, the impact of competition, coffee, dairy and other raw material prices and availability, the effect of legal proceedings, and other risks detailed in the company filings with the Securities and Exchange Commission, including the “Risk Factors” section of Starbucks Annual Report on Form 10-K for the fiscal year ended September 28, 2014. The company assumes no obligation to update any of these forward-looking statements.
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