A double shot from Starbucks

Steve Montgomery has big plans for expansion. Picture / Greg Bowker

Starbucks Coffee is planning a double shot at the market - expanding to perhaps 100 stores throughout New Zealand.

The world's largest coffee chain has grown steadily since opening its first New Zealand store in Parnell eight years ago.

Now serving 95,000 customers a week from 44 stores, the chain earned Restaurant Brands - which owns the Starbucks franchise for New Zealand - $3.9 million in profit for the year to February, up 6.3 per cent on the previous year.

Restaurant Brands had an initial agreement with Starbucks Coffee for 50 outlets when it brought the brand to New Zealand in 1998.

But that number is due to be reached by the end of this financial year and Starbucks New Zealand general manager Steve Montgomery is feeling more ambitious.

"We could possibly double that and hold our own," he says, a feat he expects would take another eight years.

The larger cities were mostly covered, and stores were now being introduced into "second tier" towns such as Gisborne, Timaru and Nelson.

The company was also planning airport stores and opening on a 24-hour basis in some locations.

The chain hit growing pains a few years ago, following rapid growth which led to cannibalisation of existing stores.

Growth slowed, and the number of stores remained at 35 during 2003 and 2004, with profits rising only $300,000 between those years.

"We were challenged staff-wise and weren't geared up at a store level coming out of a huge growth period," says Montgomery.

But he is confident the company is out of the trough now. First-quarter sales for the three months to May 22 rose to $7 million from $6.2 million a year earlier, an increase of 16.6 per cent and 2.6 per cent on a same-store basis.

Montgomery, a former pastry chef who spent eight years with Restaurant Brands' KFC franchise before joining the team that brought Starbucks to New Zealand, says he is "absolutely happy" with Starbucks' performance and sees plenty of growth remaining.

New Zealand was an early international Starbucks market and Restaurant Brands has succeeded in countering initial negative sentiment towards the arrival of the US mega-chain to a sophisticated coffee market.

The company also remains careful in choosing its locations.

Starbucks would not open in Devonport as that community had worked hard to create a sophisticated line-up of cafes.

Macquarie Equities analyst Warren Doak says Starbucks' strength is in its consistency of product in a way that is similar to McDonald's.

"Although you might grizzle about McDonald's burgers, a lot of people eat them, and part of the reason for that is they know what they're going to get," he says.

"It's a little bit like that with Starbucks. You know what you're going to get and it's about convenience."

Forsyth Barr analyst Guy Hallwright does not see any reason to doubt the company's confidence in expanding the chain, but says an ability to get the right locations will be the key.

He says the brand is not likely to have the same place in the New Zealand market as it does in the US, as Kiwis have different coffee-drinking habits.

Starbucks is credited with transforming coffee from a staple costing a couple of dollars to a $5 indulgence in its comfortable cafes.

Internationally, the chain's store count has soared to more than 11,000 from fewer than 200 since the Seattle-based company went public in 1992. It plans to triple in size with a goal of 30,000 stores, half of them in the US.

Bang for bucks

* 44 stores.

* Serves 95,000 customers a week.

* Froths between 25,000 and 30,000 litres of milk a week.

* Expresses 5272kg of coffee beans a month.

* Sales mix: Coffee 57 per cent, frappuccino 24 per cent, food 16 per cent, other 3 per cent.


* Restaurant Brands will hold its annual meeting in Auckland today.