Starbucks – 2012 Annual Report
It is an honor to write you this year, not only because we have achieved record financial performance but because we have once again done so by living up to the heritage of our company, balancing profits with a social conscience. Our commitment to creating shareholder value through the lens of humanity is truly a cornerstone of Starbucks global strength, especially as we pursue the most ambitious agenda in our company’s history.
Two years ago, we embarked on a strategic plan, the Blueprint for Profitable Growth, in which we would leverage multiple channels of distribution. I am proud to affirm that it is no longer theory but a true growth engine. The measure of our success can be seen in the past year’s performance:
Starbucks consolidated global revenues reached a record $13.3 billion, a 14 percent increase, with revenue growth driven by a 7 percent rise in global comparable store sales and a 50 percent rise in revenue from Channel Development. Our operating income was $2 billion, a 16 percent increase, with our consolidated operating margin rising to 15 percent, up 20 basis points from last year.
Starbucks record earnings-per-share growth continued, up 10 percent in 2012 to $1.79 from last year’s $1.62. Through share repurchases and dividends, we returned approximately $1.1 billion to shareholders.
While we are proud of our achievements, we have learned never to take our success for granted, which is why three primary attributes will continue to drive our every decision and action. First, we will remain committed to our coffee core. Second, we will exercise relevant, timely, and courageous innovation. And third, we will ceaselessly honor our values. I firmly believe that the ability to adhere to these attributes is what defines the most enduring organizations of our time, and as I share them with you in the context of highlights from Starbucks past year, I think you will agree that they are key to our ongoing success.
Staying True to Our Core Purpose and Capabilities as We Grow
We will always be a coffee company whose core business is to ethically source and roast the highest-quality arabica coffee in the world, as we simultaneously create authentic connections with our customers and the communities we serve. I assure you we are not deviating from this purpose but rather enhancing it with extreme diligence.
Scaling the Starbucks Experience. Today, 42 years after opening our first store in Seattle, Starbucks operates in 61 countries, and we recently had our most successful launch ever, in India. I was in Mumbai when our doors opened, and I personally witnessed, with our fantastic business partner in India, Tata Global Beverages, the unabashed affection and demand for Starbucks, a definitive signal that our brand is resonating around the world.
In the China and Asia Pacific region in 2012, we once again posted strong annual returns, including 11 consecutive quarters of double-digit comparable store sales growth. This success showcases how—with nearly 3,300 stores, plus hundreds more planned throughout Asia Pacific—we are mastering the transferable ability to scale our brand’s core attributes and expertise, while respecting and reflecting regional customs and cultures so we may be locally relevant. When we strike this delicate balance, we establish trust, which ensures the company has opportunities for continued growth everywhere we do business. That includes the 36 countries in EMEA, where revenues grew 9 percent last year and where we continue to apply lessons of the past to reconnect with our customers in this economically challenged but important region.
As the equity of our brand thrives around the world, we anticipate having 20,000 stores on six continents by 2014. Additionally, over the next five years, we plan to open 3,000 new stores in the Americas region alone. Unlike a period in our past, I assure you that our growth today is highly disciplined.
Strengthening Connections. As always, our 200,000 partners (employees) are working hard, crafting perfect beverages, and fostering the personal relationships with customers that distinguish our brand. As consumer behavior continues to shift, we are further translating our connective spirit beyond the walls of our stores by leveraging a combination of social and digital media, our loyalty and Card program, and mobile technologies. It is hard to overstate the collective power of Starbucks 54 million Facebook fans, 3 million Twitter followers, 14.6 million loyalty program members, and 7 million users of our mobile applications, who pay this way 2 million times each week. We also gave our customers another quick, mobile way to pay by forging a partnership with Square. We will not stop innovating on this front, where our best-in-class digital reach, and more notably the authentic engagement we ignite daily with millions of consumers online, will continue to drive our core business.
Coffee and connection will always be the heart of Starbucks, yet our ability to reinvigorate our business around that heritage remains an unmatched competitive advantage.
Innovating with Timely Relevance, Courage, and Conviction
Last year also saw significant product innovation around our coffee core, most notably in the $8 billion premium single-cup category.
We reached a true milestone with the launch of the beautiful Verismo® System, a breakthrough technology that heralds the first time customers can make Starbucks® brewed or latte beverages in their homes. This is only the beginning as we embark on a multiyear plan to grow the Verismo brand into the leading platform in the single-cup space, where sales of our other, complementary single- serve offerings are also accelerating. In 2012 Starbucks VIA® Ready Brew sales grew significantly and we shipped nearly 500 million K-Cup® packs, garnering approximately 16 percent of the premium single-cup market.
Through creative new products, we are meeting more of our customers’ needs. This summer we introduced Starbucks RefreshersTM beverages, delicious cold energy drinks made with natural green coffee extract, available in cans, as an instant beverage, and handcrafted in our stores. And we continue to delight with seasonal coffee beverages such as Pumpkin Spice and Peppermint Mocha, as well as Starbucks® Blonde roast, which we introduced for the 40-plus percent of U.S. coffee drinkers who prefer a lighter roast.
Meanwhile, three strategic acquisitions are bringing bold upgrades to our food and on-coffee beverage categories. With La Boulange® bakery products, we have begun the transformation of the selection, taste, and quality of the fresh food in our stores. Second, adding Evolution Fresh to our brand portfolio fulfills our commitment to health and wellness, and not just by bringing high-quality premium juices to our customers but by extending the Evolution Fresh brand to an exciting new store concept. With Evolution FreshTM juice products currently in more than 2,200 Starbucks® stores as well as 1,500 grocery locations, we are on our way toward nationwide distribution.
Finally, with the acquisition of the high-end Teavana brand, we’ll apply our competencies in retail operations and hot and cold beverage creation to expand Teavana’s 300-store footprint as we reinvent the tea category, in part by bringing tea bars into Teavana stores and applying learnings from our own Tazo brand. Long term, our intent is to significantly grow Teavana’s global store presence, transforming tea just as we have transformed coffee.
Our pace of innovation and creativity is rapid, and I assure you that every move is highly strategic and thoughtfully executed as we push for relevant, timely, and disciplined reinvention in our stores, in consumer product channels, and beyond.
Honoring Our Culture’s Values and Guiding Principles
More than ever, today’s consumers have an interest in and access to what companies stand for—their values. This is nothing new to Starbucks. We’ve been building a company with a conscience for four decades, and the reservoir of trust we have earned is perhaps our most precious asset. As we continue to execute our Blueprint for Profitable Growth to become a truly performance-driven global organization, we are committed to leading through the lens of humanity, not just when it is convenient or easy. This alone makes our partners incredibly proud.
At Starbucks our aspiration is nothing less than to be among the most enduring brands of our time. I am confident we are on that path, and I thank you for joining us on this journey.
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