Starbucks sees no danger of overbuilding in U.S

By Nichola Groom

CHICAGO (Reuters) - The head of Starbucks Corp.'s

(SBUX.O: Quote, Profile, Research, Stock Buzz) U.S. business said on Tuesday the No. 1 coffee shop chain is in no danger of overbuilding in its flagship market as it expands into smaller cities and along major highways.

"The more we build out and the more ubiquitous we become, we become that much more familiar," Starbucks USA President Jim Alling said at the Reuters Food Summit in Chicago. "To date, it's been a formula that has stayed tried and true."

Starbucks plans to open 1,300 coffee shops in the United States this year -- a record for the fast-growing company that transformed coffee from a 50-cent to a $2 staple.

Many of those stores will be in smaller U.S. cities and off-highway locations, Alling said, adding that the company had not seen a significant impact on sales due to higher gas prices. Many U.S. restaurant chains have struggled in recent months in the Midwest and other markets where consumer spending has taken a bigger hit due to the fuel price surge.

"There's no dramatic difference in smaller towns compared to what we saw in larger towns," Alling said, adding that there had been "no significant impact" from higher fuel prices.

Sales at Starbucks stores open at least a year rose 8 percent in February, of which 7 percentage points were driven by higher customer traffic, Alling said. The remaining 1 percentage point came from customers spending more in the stores, he added, though drink prices have been steady since late 2004.

The chain has no plans to raise prices this year.

"That's not in the cards," Alling said. "We don't have any pricing plans."

To keep boosting sales in its roughly 7,600 U.S. locations, Starbucks is testing new menu items such as a cereal served with steamed milk. That test, in its Indianapolis stores, comes as the chain is also gearing up to put hot breakfast sandwiches in 600 U.S. stores this year.

The heated sandwiches, now available in Starbucks stores in Seattle, Washington, and Portland, Oregon, add about $30,000 in annual sales to each coffee shop, Alling said.

There are no immediate plans for a national rollout, he said.

"We don't need to, nor do we have plans to, roll it out immediately everywhere," Alling said, but added that he was encouraged by customer response to the products so far.

(Additional reporting by Alexandria Sage and Anupama Chandrasekaran)