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Wednesday, Sep 20, 2017
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Starbucks, more careful now, opens new Tampa shop

TAMPA - Starbucks has just accomplished something it hasn't done in Tampa Bay in three years: Open a new location. The coffee giant renovated a former Long John Silvers restaurant into a coffee shop at Dale Mabry Highway and Linebaugh Avenue after overexpansion years ago led the company to close a slew of locations, including several in Tampa Bay. "For a while it seemed like you could stand in a Starbucks at a Barnes & Noble and look out the window at two other Starbucks," said Jeff Green, a Phoenix-based retail consultant specializing in restaurant locations. "Now their plan is to very carefully open new places."
Despite a still-sluggish economy and volatile raw coffee prices, things seem to be going well for Starbucks, with revenue and profits growing again, and new deals to distribute "K Cup" cartridges for automatic coffee makers. * * * * * That's a big shift from just a few years ago when Starbucks seemed to be fighting for its life. And while some say Starbucks simply expanded too quickly, Green that's a bit of oversimplification. As Starbucks opened up one new location after another through the early 2000s, the company always seemed to have a steady flow of customers at new spots, Green said, and that masked a deeper problem. "It took them a while to see that they were taking sales from themselves, from existing locations when they opened new stores," Green said. Starbucks ultimately closed more than 1,000 stores around the world. "Now they've gone back and tried to understand that whole cannibalization aspect of their business. They're opening new stores, but much more cautiously in the U.S." Starbucks officials say they may open only 200 new locations in the United States – a small undertaking for a company with more than 17,000 locations in 50 countries. Those new locations are in very specific spots, said Richard Hauer, a New York-based managing director with the firm BDO Consulting. "Starbucks took the downturn as an opportunity to cleanse its portfolio of properties," Hauer said. Thousands of retail and restaurant sites of all kinds have closed down, Hauer said, leaving many cities with a checkerboard of opportunities for expansion. Because Starbucks isn't rigid about the kinds of structures it occupies, the company can open nearly anywhere, from a mall corner to a former gas station. Starbucks has plenty of cash on hand, Hauer said, so it makes sense "to be proactive, to take advantage of underperforming spots, get them at a profitable price and turn them to their favor." Foreign expansion is another topic. Starbucks has only slim to non-existent market share in places such as China, India and South America. Starbucks plans to expand from 75 locations in Germany to 150 and from 370 in South Korea to 700. Soon, the company hopes to open its first locations in India and Vietnam, and there could be 300 new locations in Mexico and Argentina. China will see the biggest expansion, from 470 locations to 1,500. Investors like Starbucks lately. The company saw quarterly profit rise 34 percent and stores open at least a year reported 8 percent sales growth. While the stock market has wrenched up and down in the last year, Starbucks stock is up more than 50 percent. * * * * * To be sure, Starbucks faces risks. The company is directly exposed to the volatile raw coffee market, plus fuel costs can quickly eat into distribution and dairy prices. What's more, there's a lawsuit with Kraft Foods after Starbucks ended a deal to have Kraft distribute Starbucks products in grocery stores. Not that Starbucks is abandoning hopes in the grocery store. Exactly the opposite. Chief executive Howard Schultz said the food business could soon become as big as the coffee shops, and Starbucks recently developed a "K Cup" cartridge for coffee and its Tazo tea brand to work in single-serve coffee makers. The cartridges could start appearing on grocery shelves by November. All that said, Starbucks isn't for everyone, Green notes. The company sells a higher-priced coffee than rivals, and appeals to a certain segment of society. "If you're a Starbucks shopper, you don't see yourself going to a gas station for a cup of coffee," Green said. "Maybe it's a bit of snobbery, but you go where you're comfortable. And one thing about Starbucks is that there is always a consistent experience – like it or not."

rmullins@tampatrib.com (813) 259-7919 Twitter: @DailyDeadline

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