Starbucks Corp. (SBUX) and Italian restaurant group Autogrill have announced that they will extend their partnership for another 10 years and manage coffee outlets for Starbucks. In North America, the partners have agreed to open additional 120 new shops at airports and highways. As part of the agreement Starbucks will receive fees on sales of its products by Autogrill.
Autogrill already operates more than 360 Starbucks coffee shops that generated more than $450 million revenues in 2010 for Autogrill. The company expects that the extension of the partnership with Starbucks will fetch an additional $5 billion in revenues in the next ten years. The agreement between Starbucks and Autogrill was exclusively for restaurants at “travel channels” — in airports and at highway rest stops.
Autogrill, the world’s largest provider of food, drink and retail services to travelers is headquartered in Rozzano, Italy. Edizione, the Holding investment vehicle of the Benetton family, enjoys a 59% stake in Autogrill. It runs operations in 40 different countries, primarily in Europe and North America, with over 250 licensed and proprietary brands.
A major chunk of the company’s sales comes from outlets in airport terminals and motorway service areas. The catering giant has expanded its operations outside of Italy and Europe in the last few years, and in 1999 it entered the highly competitive U.S. market after the $500 million takeover of HMSHost, a leading caterer for travelers in the country.
The extension of the partnership between Starbucks and Autogrill is a strategic step that strengthens the position of both the companies by opening up new development opportunities in the other countries.
The agreement comes at a time when the coffee and coffeehouse retail giant is expanding globally on occasion of its four decade of coffee retailing. Starbucks is expanding its horizon and as an example, opening new stores in the Central America.
The owner of Seattle’s Best and Tazo Tea also ventured into single-serve coffee and launched ‘Via’ instant cup coffee in China and Japan, which saw huge success. The company is also competing with its rival Keurig owned by Green Mountain Coffee Roasters Inc. (GMCR) by trying to capture its market by selling brewer machines at a cost lower than that of Keurig.
Management reportedly plans to increase the grocery business of the company by tenfold. It also feels that this CPG (consumer packaged-goods) business will rival the success of the Starbucks retail business of traditional coffee shops of the company.
Currently, we maintain a Neutral rating on the stock on long term basis. Further, Starbucks holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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