Starbucks CEO Bullish About Prospects, Thanks to New Grocery Business

Howard Schultz, chief executive of Starbucks (SBUX), delivered a bullish outlook last week for the company, citing plans to increase the company's presence in the single-serve beverage market and to expand beyond coffee into the grocery business.

In a conversation at the 92nd Street Y in New York with Norman Pearlstine, chairman of Bloomberg Businessweek, Schultz (pictured) said Starbucks recently established a "strategic relationship" with Green Mountain Coffee Roasters (GMCR), producer of the Keurig single-cup brewing system, because it presented an opportunity to create a "one billion dollar business" for Starbucks.

A Billion-Dollar Business

Announced in March, the pact will involve the manufacturing, marketing, distribution and sale of Starbucks' coffee and Tazo tea single-portion packs. Starbucks also began selling single-cup portions of its own Via instant coffee last year. At the time of the announcement, the two companies said overall coffee category growth in the U.S. in 2010 was driven primarily by single-cup coffee sales of close to $2 billion.

Since its acrimonious break-up with Kraft Foods (KFT) -- which had the exclusive right to sell Starbucks coffee to grocery stores until Starbucks tried to terminate the arrangement late last year, a move upheld in February by an appeals court -- Starbucks will now be able to build a "major consumer products business that over time will rival our retail business," Schultz said.

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The company, which recently changed its logo to remove its own name as well as the word "coffee," now has "the freedom to enter the grocery business with multiple products within food and beverage that perhaps will not be coffee," Schultz said.

The executive noted Starbucks is testing the sale of wine and beer in the afternoons and evenings in several stores, an experiment he claims has been successful, though he added they were not sure "what we are going to do with it yet."

Another new move -- mobile phone payment for Starbucks store sales -- has been a resounding success, according to Schultz. Introduced some three months ago, the mobile payment system has been so popular, Starbucks is now the number one company in the U.S. for mobile phone sales, he said.

"Gold-Rush Mentality"

Schultz sees China -- where Starbucks has been in business for 12 years -- as a "huge opportunity" for the company. It currently has 800 stores in Taiwan, Hong Kong, Macau and mainland China -- with half of them on the mainland.

Starbucks' expansion in the region notwithstanding, Schultz criticized what he called "a gold-rush mentality by every Western brand rushing into China, without the discipline and the understanding of the consumer and the issues of navigating in terms of the government. I think there are going to be a lot of companies that are not going to succeed, literally fail miserably by rushing in and not doing their homework."

Schultz joined the board of Groupon because "they are doing something that really caught my imagination. To get a front row seat in an unbelievably entrepreneurial company that is changing the rules and could affect Starbucks. I thought was of real benefit and value to the company," he explained. Groupon, which was eyed by Google and Yahoo last year as a potential takeover target, offers its subscribers discounted coupons for goods and services.

The brands Schultz most admires include Zara, the Spanish fashion chain owned by Inditex, which trades on the Spanish exchange; Costco (COST); privately held Crate and Barrel; and Apple (AAPL). Asked which executives he considered role models or individuals he could learn from, he named Apple's chief executive and co-founder Steve Jobs; Les Wexner, founder and chief executive of retail chain Limited Brands (LTD); and Jim Sinegal, chief executive and co-founder of Costco.

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