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Starbucks' CEO Presents at 2013 Sanford C. Bernstein Strategic Decisions Conference (Transcript)

Starbucks Corporation (SBUX)

2013 Sanford C. Bernstein Strategic Decisions Conference

May 29, 2013 10:00 am ET


Howard Schultz - Chairman, President and Chief Executive Officer

Troy Alstead - Chief Financial Officer and Chief Administrative Officer




Good morning, everybody. I'm very delighted to welcome Howard Schultz, Chairman, President and CEO of the Starbucks Corporation; and Troy Alstead, CFO of the Company, to the stage. Mr. Schultz has been Chairman since the Company's inception in 1985 and reassumed the role of President and CEO in 2008. Mr. Alstead has also been with the Company for over 20 years.

Now Starbucks has been driving global growth with a focus on China. The Company is also building its consumer products segment whereby coffee and other products are sold through retail outlets at home and overseas. I'm going to hand it over to Howard to tell a little bit more about the outlook for the Company. Thank you, Howard.

Howard Schultz

Thank you very much. Good morning everyone. I was reminded about a week ago that I was here last three years ago in June of 2010. It's really hard for me to believe that three years have passed. So I went back and looked at June in 2010 and the market cap of Starbucks was approximately $19 billion with the stock price hovering around $25. At that point, in June of 2010, I would say we were at the midpoint of the transformation of the Company. Some of you were in the room then, maybe some of you believed, and perhaps many of you didn't because there was a lot of questions at that point whether or not Starbucks' best days were behind it.

In 2011 and in 2012, Starbucks had record years, record revenue and record profits, and at the end of 2012, we declared internally that the transformation agenda that we began in 2008 was complete and we were now looking towards the future in a different way, and that's how I'd like to start my time with you this morning.

Let me begin with the aspirations that the Company has today, and what I'm about to say is not hyperbole, it's something we believe very strongly, and that is that we believe as a management team that we have the capability and the wherewithal to become the most admired, respected and trusted brand in the world, and with the 19,000 stores in 62 countries serving approximately 70 million customers a week, employing over 200,000 people, we certainly have crossed the chasm of where we were in 2010. That aspiration is now linked to a number of priorities we have in the Company and let me take you through a few of them that I think will provide you with a texture and understanding of why we have the confidence to move forward in this way.

Let's begin with your core business. In 2008 and even in 2010 when I was here last, there was great questions and I think great doubt about the core business, and I'm talking specifically first about the U.S. business. The U.S. business was under attack and we did many, many things specifically around operational excellence and true innovation, and it's not an accident that the stores that we've opened in the U.S. this past year and in the last 24 months are the best performing stores or some of the best performing stores that we've opened in a decade, and the comp store sales reflects that.

We now believe strongly that any concern that anyone has had about the subject of saturation in the U.S. alone is absolutely a non-starter for all of us at Starbucks, that we have cracked the code of understanding with great data and diagnostics, the understanding of where our stores should be located and we've cracked the code on multiple formats and integrating real estate design and different configurations and ways in which we can intercept traffic, become highly relevant to our customers, and demonstrate incrementality and continue with the sales-to-investment ratio that has been at the hallmark of Starbucks which is no less than 2 to 1. So, U.S. core business is healthier today than perhaps any time in the last decade and we're going to be extremely aggressive in the U.S.

Continuing on the core business, let's move to China. Every company that you're going to listen to and every company that you follow is going to talk about the opportunity in China, and the gold rush mentality that we've seen is going to be filled with great peril because there's going to be a lot of failures, there has been already. Starbucks has been in China now for almost 15 years, we will hit 1,000 stores in the Mainland this fiscal year, our business is healthy, but most importantly, what's happened over the last year or two is the relevancy of the Starbucks brand and the experience in China that literally is second to none, not only in our category but in anyone in the retail restaurant space, and that can be seen firsthand by visiting China and seeing how the locals are using Starbucks stores.

What's most encouraging to us is what's happened to Starbucks in secondary and tertiary cities, the response without a dollar of advertising and marketing, the lines out the door, almost as a right of passage to those cities, elected officials, mayors, to get a Starbucks into their county or province. The growth in China over the next five, ten years will be obviously quite significant and the foundation that we have built is as strong as anywhere in the world in terms of the skill base of the team, the expertise, and the learning curve that we've gone through over the last 15 years.

In addition to that, the stores that we've opened this past year in India and Vietnam also give us great optimism for the future. We've opened 12 stores in India in a partnership with Tata, we're 12 for 12 in terms of meeting and exceeding expectations, and our first store in Vietnam was one of the strongest openings in the history of the Company. Rounding out Asia Pac, just in the past four weeks, I've been to Jakarta, The Philippines, Thailand and Japan where I've seen firsthand the velocity of our brand, the relevancy and the opportunities that we have. Asia Pac will continue to be a strength of the Company going forward. In Latin America, places like Mexico where we have almost 400 stores and double-digit comps, we see that part of the world continuing to be a great opportunity for the Company.

Then lastly, I'd say that the experience and the challenge that we've had in Western Europe will continue for quite some time but we are seeing the beginning of leveraging the learning we had in our own transformational agenda in the U.S. onto the platform of Europe and we are seeing incremental benefits to that strategy and improvements in terms of the operating margin. Troy can speak specifically to that but our expectations are that over time, Western Europe will hold its own and we're still deeply committed to making sure that that market is profitable over the long term.

So the core business within the U.S., China, Asia Pac, Latin America and Western Europe on a go forward basis should give you great comfort that we believe that we can continue to maintain the kind of performance that we've had over the last two years in terms of sales-to-investment ratio and our comp store sales.

Now what did not exist when I was here in 2010 was the leveraging of our CPG business and integrating that into the retail business, something we called our blueprint for growth. Let me explain this here. A few years ago when I was here with the introduction of Starbucks VIA, that was a $50 billion category that we identified that had not had any innovation for 50 plus years, dominated by one company, a great company actually, and we felt that we could bring true innovation and it was right for innovation.

We introduced that first in our stores and we were there for almost a year with the intent from day one that we would bring VIA into the grocery channel and create almost 100,000 points of distribution for VIA alongside our roast and ground coffee business. VIA has been a home run for the Company and over time will be a billion-dollar business. But beyond the revenue and the profit of VIA, what it did is it galvanized us internally to truly understand that we were sitting on a treasure chest of assets that could give us the ability to do something that perhaps no retail or restaurant consumer brand has ever done before, and let me try and explain that to you.

Starbucks is sitting with a national footprint in North America of 10,000 plus stores, primarily Company-owned because we're not a franchise system. If we can introduce products like Frappuccino, VIA and other products into our stores, brand them, create loyalty, create frequency and attachment with our customers, and then within a year or so, draft off of the success we have inside our stores by leveraging the capability, the infrastructure, that we have built over the last two years within CPG, we believe that over time we can build a business outside of our stores that will rival the size and scale and ultimately the profitability of our retail business. And over the last two years, when Starbucks took the business back from Kraft, we have been building that business and that business has given rise to things like single-serve and K-Cups and Verismo and things of that nature and is well over $1 billion in revenue today as an overall standalone business.

Going forward, you will see us introduce new categories into our retail stores, like we did this past year with Evolution Juice, and other categories that we believe makes sense in our stores, leverage that with the trade, and create profitability on to the grocery channel. Now in addition to having multiple channels of distribution and leveraging the store base to introduce new products, this month we're doing something that has not been done before and that is leveraging the unique assets of Starbucks' social, digital, card loyalty and mobile platform and taking that into the grocery channel. This is also something that for most of us that have done the work and looked at the research has not been done before.

So basically over this past year and a half, we've noticed a seismic change in consumer behavior and that seismic change primarily is due to social and digital media and the rising tide of mobile phones replacing desktop computers. As a result of that, the mining of information, the diagnostics and the emotional engagement and attachment that we've been able to create through a best-of-class relationship with Facebook and Twitter and leveraging the Starbucks Card which is now a multi-billion dollar business onto the Starbucks mobile platform, and which today we are now processing roughly 4.5 million mobile transactions a week, far greater than anyone in the world in our space, and that mobile platform is giving us a greater speed of service, higher attachment, higher ticket, and higher reload.

The question was, if Starbucks products are sitting on the grocery shelf, what could we do that leverages the loyalty system of Starbucks? So beginning in the month of June, Starbucks roast and ground coffee sitting on thousands, tens of thousands of grocery shelves across the country, will have a tag affixed to the bag and that customer buys the coffee bag and they will be able to achieve loyalty or stars the same way our customers do in our stores. The initial read on this demonstrates that we'll be able to create a higher level of velocity and loyalty with grocery customers as a result of their core relationship that they have inside our stores and as a result of that we will have a competitive advantage versus anyone who is selling coffee against us in the grocery channel. This is just the beginning of integrating card loyalty, social and mobile, in multiple channels of distribution.

In addition to that, what we've done in North America with approximately 100,000 points of distribution within CPG is just the beginning. The long-term aspirations of the Company is anywhere where we have size, scale and maturity of the brand, we will create on a parallel basis a CPG business. So those markets that have north of 500, 600 stores will begin to see the formation of a CPG business. And as I mentioned, or Troy and I mentioned on the conference call last quarter, we're beginning to do the initial work to bring our CPG business to China where the equity of the brand and the aspiration of Starbucks as an iconic brand is very, very high and the demand for our products outside of our stores is quite significant.

The last 18 months or so has also seen Starbucks make three acquisitions. Let me explain each one of them, why they are strategic, why they're going to add shareholder value, and most importantly, why they're going to enhance the customer experience. We bought Evolution Juice for a couple of reasons and we've done a lot of work over the last couple of years in the category of health and wellness and believe strongly that this is not a trend that's going to go away, it's not a fad, this is real and the momentum of this is quite significant. The demography of Starbucks customers is linked directly to living a healthier life and we believe that Starbucks, the brand, the store, and the position we occupy across the countries we have license to participate, it is helping wellness category, and we're going to do so.

The acquisition of Evolution Juice is we identified a relatively small company, we acquired it for $30 million. They had a piece of technology called high-pressure pasteurization which literally produces the highest quality juice in the world. We are in the process of rolling out to every Starbucks store in the United States about four to eight SKUs depending on the store of Evolution Juice in every Starbucks store. On the West Coast where Evolution Juice is now in place, we're seeing great take rates in terms of attachment and sales velocity. It will be in New York and the East Coast before the end of the calendar year.

In addition to that, on a parallel track which is consistent with our CPG strategy and what I've just explained, you will see Evolution Juice primarily in every high-end grocery store in the country over the next 12 to 18 months. We are already in 3,000 grocery stores on the West Coast. So the opportunity to create impressions, loyalty and attachment with Evolution Juice inside Starbucks stores and then see it on the grocery shelf and the cross promotion and the cross loyalty that I just described that we're doing with coffee will be applicable to Evolution Juice.

The second acquisition was La Boulange and I think candidly for years we have struggled with the Achilles' heel of the fact that we have never been and do not want to be a typical restaurant and that means we didn't want to cook food in our stores. We've been hunting and searching for the kind of artisan bakery and capability that could significantly bring talent into the Company and give us the core capability that we did not have ourselves. We found it in a artisan French baker named Pascal Rigo, we bought La Boulange for $100 million. They have 19 cafes or bakeries of their own but the big idea which is well on its way is to significantly transform the food in every Starbucks store across the country. We've now done that in the State of California, it rolls out in the Northwest this month, and within the next 18 months from today, it will be nationwide in every Starbucks store as we have completed the infrastructure and a distribution network required to do so.

We are seeing significant customer response and all I can tell you is for the first time in many, many years we are as proud of our food as we have been for 42 years of our coffee. We believe that this food is going to give us an opportunity to create incrementality and multiple dayparts and also create different opportunities to satisfy these states with food that we do not have today. This is a big, big opportunity to leverage the comprehensive daypart of a Starbucks store where we have fixed costs in terms of labor and be able to do something we have not done before.

The third acquisition was Teavana for approximately $600 million. Why did we buy Teavana? Coffee, not unlike tea, is a global category and many in the world believe that tea has more opportunities than coffee on a worldwide global basis. It's a $40 billion global opportunity growing at double-digits in places outside of North America. We've always been in the tea business but it's been dwarfed by the cockiness of a Starbucks store and represents less than 0.5% in a Starbucks store. We love Teavana for a number of reasons. With 300 mall-based stores in their portfolio and a sales-to-investment ratio very attractive and very attractive unit economics, we felt we could do three separate things with Teavana.

First off, we believed that Starbucks' capability to acquire real estate in urban parts of the country that would be complementary to their mall-based stores would be a no-brainer for us, and so you will see hundreds of new Teavana stores over the next few years in street level urban locations that are analogous to the Starbucks locations we have today.

Secondarily, if you look at a Starbucks store today, one of the hallmarks of Starbucks is the ability to create traffic frequency and attachment through enrolments with theater and the delivery of customized beverages. We strongly believe that we are going to be able to do for tea beverages what we've done for coffee beverages in a Starbucks store and we're in the process of designing and building the first street level location of a Teavana store which will be in the city of New York sometime in the fall with a very high-end tea bar that will serve hot and cold tea customized beverages and create a new level of frequency and incrementality for Teavana. Once we've cracked the code on that, and we know we will, we will go back into the 300 mall-based stores and over the next year or two remodel all those stores to put in place a tea bar that does not exist in those mall stores today, which will create higher traffic, incrementality and more profitability to Teavana.

And lastly, the opportunity exists to do two things, potentially bring Teavana beverages and loose tea into Starbucks stores which will obviously create a halo on the brand, and at some point decide that we can bring Teavana into the CPG channel leveraging the capability of the infrastructure that we've built over the last two years.

All three of those acquisitions were highly strategic, done so through the lens of our core business, and done so through the lens of our capabilities as a management team. La Boulange will enhance Starbucks food in our stores, Evolution takes us into the health and wellness business and improves our juice business, gives us a CPG opportunity, and Teavana is another leg to the growth of the retail stool and leverages the existing infrastructure with no added expense of Starbucks real estate acquisition design and retail operations. Teavana already has been folded into the infrastructure of the U.S. Starbucks retail business.

Now I touched on social and digital media and so I want to spend a few minutes on that. I mentioned that there has been and we are witness to a seismic change in consumer behavior and any company that is in the retail business, consumer business, it really doesn't matter, you can be in the insurance business, that ignores this unbelievable tidal wave of change is going to be facing a collision course with time.

In 2009, we began to see these strengths and even though we were going through our own transition, we began to make significant investments in capability, resources to really understand not only how we could be relevant to millennial and how we can create a co-authored strategy with people like Facebook and Twitter. Anyone could do that. The real question was how can we do this in a way that will add significant value to our customers' relationship with Starbucks and ultimately drive frequency, attachment and incrementality into our Company?

If you look at the U.S. business specifically and look at the fact that we are driving in the last two quarters alone 7% comp store sales on the base of our stores, that is a remarkable number, especially when you look at our peer group. I can tell you that some of that is happening as a result of the diagnostics and the understanding that we have of how to use and leverage the tools of social and digital media, our loyalty program, and mobile to create opportunities to drive incremental traffic into our stores. And the information and the data we have coupled with the expertise that we have in-house is perhaps one of the most exciting opportunities we have in the future, and what you'll see in the future is us be able to do this in a way that is seamless to the customer, very respectful, but give them more and more reasons to come to Starbucks and leverage the science, the technology, the data in ways that I don't think anyone in our space is even getting close to.

Now I talked earlier when I started about the aspirations we have as a Company, and when I look at the original Dow 30 from 1928 and the fact that only one company remains and that is GE, it is damn hard to create an enduring, sustainable business of the type that we have built. It requires unbelievable strategic thinking and discipline and at the same time a level of aspiration that goes beyond the status quo. What we've done in the last couple of years in transforming Starbucks as we sit here today with a $48 billion market cap and a record stock price, it would be easy for us to convey to you that we are satisfied.

Let me tell you something. We are just getting started. We are not satisfied. And if you were sitting with me and Troy and our leadership team meeting on Tuesday morning and you didn't know what the stock price was or you didn't know what happened the last five years, you'd say to yourself, man this company is in trouble because we are damn self-critical. We're not satisfied with the status quo, we want to continue to push for self renewal and reinvention, and we are deeply, deeply committed to growing the Company in a way that balances profitability with the social conscience, and we aspire to become the most admired, respected and trusted brand in the world. That is what we're going to do, and we're going to do it with great thoughtfulness and great discipline and do it in a way that makes our people proud to work for the Company and makes our customers proud to visit and support Starbucks not only for its products and service and experience, but its values and its deep sense of humanity.

Over the last two years, what we've done n the management side I think is important. We have built the strongest senior leadership team in the 42.5 year history of the Company. We have recruited significant talent into the Company that come to Starbucks with a skill base and experience far beyond the size and scale of the Company, and we've recruited these people because in addition to their skill base and experience, they have like-minded values, the alignment that we have with each other and our Board to do the things I've just outlined, to not embrace the status quo and push for reinvention and self renewal, to understand that innovation is not a line extension but innovation is something that is disruptive, and that Starbucks is in a unique position to disrupt the marketplace because we have built over the last 42.5 years and especially the last five a deep, deep level of trust with our customers and our people to continue to do the right thing.

Whether you believed in 2010 or not, I hope that you will believe in 2013, that we are just getting started, that we're going to be the kind of company that makes many, many people proud to be associated with Starbucks, and along the way make shareholders very proud of the shareholder value that we have created. Thank you very much.

Question-and-Answer Session


Thank you very much Howard. So I have a few questions there and a few of my own maybe just to get things started. If you have questions from the audience, feel free to write them down and we'll collect them and bring them up here. So one question on the single-serve coffee format, there's been some changes in there recently, what are your long-term expectations for the single-serve format, how do you view the different technologies that are addressing the market demands, Verismo, K-Cup, et cetera?

Howard Schultz

I'll start and maybe Troy can jump in as well. I would say that because of how we have constructed the relationship with Green Mountain and Keurig and the experience we have with Verismo and the innovation that's behind the scenes that we're sitting with the winning hand. We're sitting with the winning hand because the more Keurig machines that are installed in households across America, the more K-Cups we're going to sell. We have already shipped approximately 900 million K-Cups since the formation of that agreement and the velocity of that continues. But the relationship we have with Green Mountain and Keurig allows us to be agnostic and participate in other formats which gives us great flexibility domestically and around the world. I do believe that single-serve is here to stay, that Green Mountain has done an excellent job, and that we benefit from each other and I want them to sell as many machines they possibly can because every time they sell a machine I know that K-Cups are going to follow with Starbucks.

Troy Alstead

I'd like to say that we have over the years built and now maintained the premium leadership position in packaged coffee in the U.S. marketplace, and I'm guessing from leveraging the assets we have and with the power of the brand and the consumer relationship we have and the system of our stores that allows us to build the equities of that brand and those great experience with customers. In a very short period of time, we've similarly built a leadership position in premium single-cup in the U.S. We believe we are nowhere near the top of that market in terms of how big that market grows over time and our ability to create a greater market share in an extending market than we have today, and that's in the U.S. There's a tremendous opportunity as we leverage this further outside of the U.S. over time as well.


You made a comment a little bit on Europe and how the turnaround there is going relative to your expectation, what have been the big changes and what opportunities still remain?

Troy Alstead

I will. I was just in Europe last week with some team, I had a chance to meet with industrialists but also spend time with our team and see firsthand once again what we're doing there. Europe for us is not unlike what the U.S. was in 2007, 2008 and 2009 when we artefacted and then executed on a significant transformation of the business. We are going through much of the same in Europe, it's a longer road, much of it will take longer and be a bit slower to execute in Europe given the complexities of the challenges we face. We have a great optimism in our ability over time to progress Europe towards a healthy, margin growing, profitable part of the Company. We've articulated a plan to move Europe from low single-digit margins to mid to high-teens over time.

I would expect that will come over a handful of years with margin expansion every year from here forward by restructuring the store portfolio, bringing it to help just as we did in the U.S. by relicensing and in some cases franchising appropriately where it's better to let somebody else deploy capital and manage the business and operate for us, by doing significant work around consumer engagement by introducing things such as our loyalty program which is fairly new in Europe, we had such power with that here, we have great confidence in our ability to leverage that further in Europe, and through significant cost work around the middle of the P&L, labor deployment, waste management, supply chain and G&A structure, all of which give us component of improvement in that business and a transformation, again not unlike what we navigated in the U.S. It was helpful for me to see it firsthand again last week. We are well on that path and I'm quite confident in our ability to move to that place.


Does all innovation and new ideas need to start in the U.S. and then be taken out to other markets or are you beginning to bring learning from other markets back to the U.S.?

Howard Schultz

That's a very good question. I think honestly I think five years ago people in Seattle at our offices would have thought that they knew best in terms of what the Chinese or the Japanese or the Indonesian consumer wanted and most things were invented in Seattle. That was a mistake. Over the last few years, what we've done is created a completely decentralized level of decision-making, especially on consumer facing initiatives that related to food and beverage. So the autonomy and the flexibility that these markets have to create their own beverages and food are in place, and in fact Green Tea Frappuccino is one example of a product that was invented in Asia that came to the U.S.


Then a question more on the financial side. What's the margin on introducing new products? When you think about Evolution Juice versus the core coffee offering, how do you manage margins over time?

Howard Schultz

I cannot speak publicly about margins, I don't know if Troy does or not (indiscernible).

Troy Alstead

We are very deliberate in how we manage the margin structure with everything coming into the core Starbucks store as well as how we think about our progression down the aisle. Everything you see us doing we have every anticipation of being accretive to that profitability structure over time. Even food, which at a gross margin level is moderately lower than beverage, as we build food to a much more prominent part of the Starbucks store over time, we meet and exceed our customers' expectations, we create a higher attach rate and we use food as a traffic driver for other dayparts, that will be accretive to the bottom line of the store as we are able to leverage that existing asset we have. So similar with Evolution Fresh, similar with single serve down the aisle, all of that we expect to at least sustain or drive margin accretion over time.

Howard Schultz

One thing, I think unlike a traditional retailer or a traditional restaurant, the amount of times a Starbucks customer visits a Starbucks store during the week or the month, demands that we as operators and managers understand that it is incumbent upon us to create a sense of discovery in our stores and levels of innovation, and that is why it's so critical that we continue not to embrace this status quo even when we're putting up these kinds of numbers.


How do you think about possible allocation , and this may be another question for Troy, how would you order the Company's priorities?

Troy Alstead

First and foremost, and I'm sure what you hear from everybody else, is to invest back into our business. We have a phenomenal growth engine within the Company, we want to ensure as long as we can continue to elevate profitability, drive the top line and grow return on capital that we will invest appropriately back into that. That includes investing in our people, in our store geographically and all the capabilities that support that. We are fortunate to have built a business over time that generates very healthy cash flow in excess of all it takes to invest back in the business, and as a result of that we have been growing our dividend and anticipate continue to grow our dividend over time not only as earnings grow but also looking closely at that payout ratio. We have a taxable structure in our Company that allows us to pay out higher than what we are today and that's something we're looking closely at, and repurchases will always be in the mix of that return to shareholders as well.


How do you think about the sustainable rate of comp growth which has clearly reaccelerated again since the recession on an ongoing basis, and how does it split between price mix and channel development?

Howard Schultz

I wouldn't be satisfied over the next year or two if we can't maintain mid single-digits. I don't know if we have given guidance like that or not. I didn't, but I just did. Same thing I said. I think what we're seeing in the last couple of years is probably the best of both worlds, and that is we're driving incremental traffic into the stores and we've seen the average ticket grow. We've also benefited significantly from what we've been able to do not only by opening drive-thrus but the kind of experience people are having in the drive-thru window and how we've been able to use technology. And then I wouldn't dismiss how valuable the card has been and how the integration of the card into the mobile platform. That has given us a significant incremental value well beyond I think what people really understand.


What are the greatest unmet consumer needs that Starbucks can attract?

Howard Schultz

You know we're testing lots of different things. We said publicly that we've had a beer and wine test now for about a year-and-a-half, I think that's promising. We're certainly seeing that we have an opportunity in the evening daypart to create and experience for our customers that's good for them and profitable. We haven't decided what we're going to do with that yet. I think the health and wellness area that I spoke about in my remarks is going to broaden and I think the Evolution brand can be relevant across other products and other platforms. And obviously, we're going to make a big push into tea and the medicinal nature of tea in the health and wellness category I think all of which is going to give us great dividends.

I also think that, and this goes to what I said about the seismic change in consumer behavior is that, I think we've recognized very early on and more so now than ever before that relevancy for anyone that is in the bricks and mortar business has to apply to where people are experiencing their life outside of their stores. And so, the Starbucks brand is succeeding today because of its unique emotional level of attachment and relevancy in the digital world, in the mobile world, and the investments that we're going to make in those areas going forward are going to create a flywheel effect that is going to create more traffic into our stores because of the relevancy we have in people's lives outside of the four-walls of Starbucks.


We're coming into the final few minutes here. What's your vision for food as a percentage of total sales and what are the priorities in that?

Howard Schultz

It should be more than it is today. I don't know what (indiscernible).

Troy Alstead

We haven't put a specific target out there. Our global mix of food and in the U.S. is the same number, that's 19%, but there's a huge range around that from low double-digits in some markets around the world to 30% or higher in other markets around the world. We know there is a model where that mix of food works beautifully in our stores and can be operated well and is very accretive to the proposition. So I anticipate and have an aspiration that we can drive that 19% well into the upper 20s over time and we have two-thirds of our transactions in our U.S. system today that do not have food on them. That represents the opportunity. Many of those customers want food, we've already acquired that customer, they are in the stores, they are fans of Starbucks and are ready to give us their money. Our opportunity here is to provide food that is at a quality, that meets their expectations, that drives them into the midday, that provides an alternative for them to going somewhere else for that lunch occasion or in the afternoon or in the evening as Howard mentioned. So we have every opportunity to drive food as a significant growing part of the business.


Can we focus a little bit on the U.K. market where some of the competitors have been quite innovative recently? How do think about the U.K. market and what the challenges are going forward?

Howard Schultz

The U.K. is probably the most ferocious market in the world in terms of high quality food and beverage on every high street and I think (indiscernible) has done a very good job and we have a very strong local competitor there called Costa Coffee. Having said that, our transactions in the U.K. in terms of number of transactions per store if you compare to the U.S. are very comparable. The problem we have there is that the cost structure is very high and I don't think that's going to change any time soon, coupled with the macroeconomics of the Eurozone. So what I would say is that we are pushing very aggressively to do a number of new things in the U.K., we're seeing the beginning of incrementality in terms of traffic, and it's just early signs enough to give us the hope that we're on the right track and we're applying every lesson we learned during the U.S. transformation onto the U.K. business.


Great. Then in the last couple of minutes, as a CEO, you returned after leaving. What is your personal goal and motivation now and for the future of Starbucks?

Howard Schultz

That's a pretty easy answer. I've told the Board that I'm here for quite some time, it's been five years since I've come back. People ask me all the time why did you come back and the word I use which is not a word generally used in rooms like this is, love, love and responsibility for the Company, our people and their families, and I think what we've accomplished the last two years is a great indication of what we think is possible for the future, and I meant what I said in my remarks, we are just getting started.


Great. Thank you very much. I appreciate that.

Howard Schultz

Thank you.