Starbucks gets its buzz back as City sales soar

Rise in popularity in US copied in UK, where City outlets help revenues jump 5 per cent

The rehabilitation of the US coffee chain Starbucks gathered pace yesterday when it disclosed forecast-beating profits for the past three months. The company said that cost cutting and a spike in popularity in America had helped it to a better-than-expected profit of $217m (£141m) for the quarter ending 28 March, compared with just $25m in the same period last year.

The figures were boosted by an increase in customer numbers, the first rise for 13 quarters. Revenues jumped 9 per cent to $2.53bn, up from $2.33bn a year ago.

"Starbucks' second-quarter results demonstrate the impact of innovation and the success of our efforts to dramatically transform our business over the last two years," Howard Schultz, the founder of Starbucks who returned as chief executive in 2008, said.

The results demonstrate a remarkable turnaround for the group, which as recently as two years ago was struggling after overly ambitious expansion plans misfired.

Speaking in London three months ago, as Starbucks reported its then best results for two years, Mr Schultz said: "We have now come through what was a cataclysmic and brutal economic crisis to deliver a record quarter. From our point of view, continued innovation, the successful enhancement of the consumer experience and a transformed, more-efficient cost structure have brought Starbucks to a significant milestone – a return to profitable growth."

Part of the improvement has come as a result of the ubiquitous chain shedding thousands of jobs and closing hundreds of underperforming coffee shops.

Starbucks has also enjoyed a strong second-quarter performance in the UK, saying that revenues in Britain and Ireland were up by 5 per cent on the same period last year. The group said that it had seen particularly good trading in its City and Canary Wharf outlets in London, underscoring the theory that a recovery in the financial services jobs market is well under way.

"At the start of the recession these branches were hard hit, but they have come back strongly – they are now part of the strongest region of the UK," said Darcy Wilson-Rymer, the managing director of Starbucks UK.

A spokesman said that the group would open 50 new shops in the UK this year, although the overall number will remain broadly flat after the group lost 35 outlets when the Borders chain of bookshops closed last year.

During the past three months, the company has launched its range of Via instant coffee in the UK, which it is selling throughout its coffee shops and other outlets. Mr Wilson-Rymer said that the company has also signed a deal with Thomas Cook airlines to provide Via on its flights. The UK arm of the business already had an agreement with Welcome Break to supply Starbucks coffee at motorway service stations.

"Customers are still looking for value, and they told us that they wanted to be rewarded for loyalty," said Mr Wilson-Rymer. "Our response is now paying off. Customers are also looking for better coffee at home, at work or on holiday, which is why Starbucks Via represents such a big opportunity."

This is not the first time the group has made an assertion about the quality of the Via range.

In January the group was forced to withdraw a claim that the Food Standards Agency (FSA) had barred Starbucks from describing Via as instant coffee because, Starbucks said, the quality of the coffee was too high. The claim was made repeatedly during a meeting with reporters that was chaired by Mr Schultz.

The FSA said that it had given no such advice, adding that "we have not spoken to Starbucks at all about this product". A press officer for Starbucks later admitted that the claim was false.

"There is actually no issue with the FSA regarding Via, or its quality," he said.

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