It’s an understatement to say that Starbucks has been doing some things right lately.

Valued at below $10 a share right after the financial crisis, the coffee champ posted a blockbuster recovery in a business that Wall Street had just about written off. Investors who held their shares were rewarded for their faith, though. The stock is now near $60 a share — up more than 500% since early 2009.

Here are a few examples of the stunning rebound in operating metrics that fueled Starbucks’ great run:

• Profit margin: Since hitting a low in 2009, operating profit margin has more than tripled to more than 15% now. That’s a better than 10-year high for the company.
• Comparable sales: After posting a 6% drop in comparable sales in 2009, growth has returned to Starbucks — with a vengeance. The company logged a 7%, 8%, and 7% increase in same-store sales for 2010, 2011, and 2012.
• Operating cash flow: Starbucks is now swimming in cash. Annual cash flow has doubled in five years, climbing to a rate of more than $2 billion per year.

However, there’s one number Starbucks hasn’t managed to improve at all over the past three years. And it’s something that the company absolutely needs to fix if it wants to keep the great run going.

Feed me
We’re talking about food.

Take a look at Starbucks’ food sales as a percentage of the company’s total sales for the past three years.

Source: Starbucks financial filings.

Beverages account for the lion’s share of Starbucks’ sales. And after ticking up by 1 percentage point in 2009, and by another in 2010, the fraction of sales that Starbucks gets from food has been stuck at 19%. That’s not too surprising, considering the limited food options available at most locations.

And that’s too bad, because food could drive major growth at Starbucks. For an idea of that growth potential, take a closer look at Panera‘s results. The baker clocks weekly sales of more than $45,000 for each of its bakery-cafes, boosted by a healthy midday business and super-high check averages. And its large food menu has helped ignite comparable-store sales increases lately. For example, last year Panera’s menu mix changes added 3% to the company’s sales growth.

It makes sense, then, that Panera is encouraged by its expansion into more of what you might consider restaurant-level food. The company has doubled down on those heftier food choices and has just added a new line of pasta options to its menu.

Of course, Starbucks isn’t blind to the potential that food brings to its business model. That’s one reason the company shelled out $100 million in cash last year to buy the La Boulange bakery brand. A Starbucks executive said at the time that the new brand would “help us expand day-parts, drive customer loyalty, and ultimately grow the overall business.”

Still thirsty
Sure, drinks have always been Starbucks’ strength, …read more
Source: FULL ARTICLE at DailyFinance