Good afternoon. My name is Hector, and I will be your conference operator today. I would like to welcome everyone to Starbucks Coffee Company's 3rd Quarter Fiscal Year 2018 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I would like to turn the call over to Tom Shaw, Vice President, Investor Relations. Mr. Shaw, you may begin your conference.
Good afternoon, everyone, and thanks for joining us today to discuss our Q3 results for fiscal 2018. Today's discussion will be led by Kevin Johnson, President and CEO Roz Brewer, Group President, Americas and Chief Operating Officer Belinda Wong, CEO, Starbucks China and Scott Ma, CFO. For Q and A, we'll be joined by John Culver, Group President, International, Channel Development and Global Coffee and Tea and Matt Ryan, Chief Marketing Officer. This conference call will include forward looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10 ks.
Starbucks assumes no obligation to update any of these forward looking statements or information. GAAP results in fiscal 2018 include several items related to strategic actions, including restructuring and impairment charges, transaction and integration costs, gains related to changes in ownership of international markets and other items. These items are excluded from our non GAAP results. Please refer to our website at investor. Starbucks.com to find a reconciliation of non GAAP financial measures referenced in today's call with our corresponding GAAP measures.
This conference call is being webcast and an archive of the webcast will be available on our website as well through August 25, 2018. I will now turn the call over to Kevin.
Well, thank you, Tom, and good afternoon, and welcome, everyone. On today's call, I will provide an overview of our financial performance in Q3, expand on the business update we provided last month and reinforce our strategic priorities going forward. Then I'll turn the call over to Roz and Belinda to report on our Q3 operating performance in each of our 2 key markets, the U. S. And China, and update you on our plans for each market going forward.
Scott will then take you through the Q3 financials in detail and we'll turn the call over to the operator for Q and A. Starbucks revenues in Q3 totaled a record $6,300,000,000 up 11% over last year, driven by consolidation of our East China business, strong performance from new stores, favorable FX and comp sales increases of 1% both globally and in the U. S. Excluding FX and the net impact of streamlining activities, revenues were up 7%. June comps in the U.
S. And Americas landed as expected, representing an acceleration from May April. For the quarter, our non GAAP EPS totaled $0.62 inclusive of a $0.02 impact from the anti bias trading on May 29, representing a solid 13% increase over Q3 last year. While we fell short of the expectations we had entering the quarter, we made measurable progress against 2 commitments we've made to our shareholders: to deliver predictable, sustainable growth at scale and to create meaningful increases in shareholder value long into the future. To deliver on these commitments, we continue to focus our energy, capital and resources on executing against our 3 strategic priorities.
Our first strategic priority is to accelerate growth in our targeted long term growth markets, China and the U. S. Our success in each market will be driven by further elevation and modernization of the 3rd place experience we deliver to our customers and continued expansion of our digital advantage. Ross will provide context around the progress we are making in the U. S.
And a plan that is built with a clear understanding and focus on 4 evolving consumer trends. Consumers have increasingly ubiquitous digital lifestyles. Consumers want premium products, premium experiences and value convenience. Consumers appreciate choice, including better for you food and beverage selections. Our innovation agenda in each of food and beverage, digital and store design is being informed by each of these trends.
And we are committed to increasing the velocity of innovation at Starbucks in each of these areas as they are all key determinants of customer and brand relevance today. I remain extremely optimistic about the future of our U. S. Business for several reasons. 1st, our beverage innovation platform is working, and we have a full pipeline of new beverages on the horizon to delight our customers in the quarters ahead.
Beverage innovation is fueling growth in our core platforms of coffee, tea and refreshers and offsetting some of the softness we've seen in blended. 2nd, our digital reach is expanding by every measure, including a double digit increase in active rewards membership year over year and the addition of 6,000,000 digitally registered customers who are not yet rewards members, but who have established a digital connection with Starbucks. And third, we have redoubled our efforts to drive disciplined operational excellence within our stores and to mindfully allocate capital with a sharp focus on managing our corporate expenses. China represents an important part of our strategic growth agenda, and Belinda will share specific detail around the incredibly powerful long term growth opportunity
we are curating in China.
While acknowledging a disappointing Q3, I want to be clear that we have 100% confidence in our growth strategy and the sustainability of the leadership position we have built in the market. Having been in China since 1999, the strength of our brand, the trust we have built with our customers and partners and our working knowledge of the many nuances of the China market uniquely positions us for continued long term success. Now keep in mind that this quarter alone, excluding the East China integration, we grew total transactions in China in the mid teens. We are, by design, in a phase of growth in China that is primarily driven by new store expansion. We also acknowledge the need to move faster to enable delivery in China, and we are committed to piloting delivery this fall in 2 key cities, Beijing and Shanghai, with the intent to expand from there.
We will introduce delivery in a way that combines the best coffees and the most innovative coffee and tea beverages in the world with the rapidly evolving consumer trend in China for at home and at work convenience. Be assured that as we grow in China, we will not deviate from the culture and values that have built the Starbucks brand and resulted in Starbucks today being recognized as one of the most successful global brands and sought after global employer of choice in China. I have complete confidence in Belinda and her team to navigate the next phase of our China growth strategy. Now our second strategic priority is to expand and leverage the Starbucks brand through the global coffee alliance with Nestle. We remain on track to close the Nestle deal in our fiscal Q4.
Nestle is the ideal global partner to accelerate Starbucks' growth profile by combining our global brand and coffee leadership with the world's leading distribution network, covering 189 countries. In addition, this alliance will bring Starbucks coffee to customers around the world through the world's leading single serve platforms, Nespresso and Nescafe Dolce Gusto. These single serve platforms represent the largest installed base of systems globally. The Global Coffee Alliance represents an important and highly opportunistic pillar of our growth agenda. Our 3rd strategic priority is to sharpen our focus on shareholder value return.
Step 1 was the development of a company wide emphasis on streamlining our business and organization. Over the past year, this work has enabled us to identify the strategic steps we needed to take to better and more profitably unlock opportunities that amplify our core value drivers. Those steps include further business simplification, retail market alignment, as evidenced by our purchase of East China and the sale of smaller markets better suited for local ownership, and most recently, the Global Coffee Alliance we entered into with Nestle. Streamline has freed up 1,000,000,000 of dollars of capital and has enabled us to focus our management attention and critical resources on the most important priorities for Starbucks, our partners and our shareholders. Last November, we committed to return $15,000,000,000 to shareholders through buybacks and dividends through fiscal 2020.
As our streamlined initiatives have unlocked more net capital and as we have flexed our balance sheet, we've now expanded that commitment to $25,000,000,000 through fiscal 2020. We have already returned over $5,000,000,000 to shareholders in the last three quarters alone. Now to deliver on our commitments, we know we must drive consistent growth at scale by driving excellence and execution and customer focused innovation. Let me assure you that we are energized by the foundational changes we have made and the prioritization that it provides toward our core value drivers. Before handing the call over to Ross, I want to quickly touch on our recent announcement around sustainability.
Sustainability is one of 3 of our social impact priorities: Our aspiration to make coffee the 1st sustainable agricultural product is in direct support of coffee farmers around the world.
Our commitment
to eliminate plastic straws in all of our stores globally by 2020 is in direct support of sustainability of the planet. In the same way, our agronomists innovate on behalf of coffee farmers, our packaging teams along with partners have innovated to create strawless lids and alternative material straw options. And we are also pursuing a broad approach to recyclable cups. We have long espoused the importance of companies doing well by doing good, and we will not waver from our focus and leadership position in sustainability. Finally, I'd like to take a moment to acknowledge Scott Mah for his partnership and tireless contributions to Starbucks.
Scott will remain an integral part of the management team through November and serve for a period as a consultant to ensure a seamless and successful transition to a new CFO. Thank you, Scott. All of us at Starbucks thank you for your contributions, and we wish you well. With that, I'll turn the call over to Roz. Roz?
Thanks, Kevin. I'll start out with how the Americas is reinforcing its commitment to improving current transaction trends by focusing on 3 priorities for growth: improving customers' in store experience, delivering beverage innovation, and driving digital relationships. I'll also provide some perspective on how we're driving enhanced profitability and increasing agility. First, I'll address Q3 results. We delivered another record performance of $4,200,000,000 in revenues, which represents a 6% increase over the prior year, and our new stores contributed 4 points of growth for the 17th consecutive quarter.
The impact of Frappuccino decline in the store closures to support the anti bias training estimated to be 3 points of comp in the quarter. These were the main factors that led to a 1% comp in the Americas for Q3. Factoring into this shortfall, we continue to grow share as supported by growth in our most loyal customers, growth in all categories except frappuccino, including both core coffee beverages and innovative new products such as draft and refreshers, continued strong growth in the morning, our most important daypart, and continued strong performance of new stores as we opened in underpenetrated geographies. With these indicators of brand strength, we continue to move with speed to reposition the business for growth. To modernize and elevate the 3rd place, our first priority is improving customers' in store experience.
The U. S. Operations team led by veteran Starbucks operator, Ross Anne Williams, is keenly focused on driving efficiency, reducing the time our partners spend on administrative tasks and redeploying that time to customer facing tasks. We have set an ambitious target to cut up to 50% of current in store administrative tasks by the end of fiscal year 2019 that we expect will initially unlock up to 2 to 3 hours daily to focus on customer and partner experience this fall. Through more efficient labor scheduling, automated ordering and raising store standards, we continue to leverage our earlier work around deployment 2.0 by moving from 1 labor algorithm to store segmentation based on product mix, traffic patterns and store type.
Partners will also have mobile access to their schedules, reducing the time it takes to communicate and manage changes. Using AI, we'll right size inventory levels while reducing waste, improving product availability and reducing manual inventory tasks. And our clean, safe, welcoming initiative will help to unlock the afternoon by moving disruptive tests to after close. Our U. S.
Real estate strategy will be driven by placing the majority of our new stores throughout Middle America and the South with careful consideration of the format type. More than 80% of stores built in the next few years will be drive through as data indicates significant opportunities for store expansion in higher growth, lower cost markets, especially when considering rising wages and occupancy costs. At the same time, we'll continue balancing our portfolio of U. S. Company owned and licensed stores.
Starting in Q1 fiscal year 2019, we'll also test a new approach to store portfolio management in Austin, along with new technology in the form of digital menu boards and drink preparation. Next is beverage innovation. As consumer trends and consumption habits evolve, we're focused on staying ahead of the market with relevant new products that reinforce the reputation of the brand. While not yet enough to offset declines in frappuccino sales, we see substantial accretive growth from draft, refreshers, tea and cold brew platform. In general, consumer demand for cold beverages has grown from 37% of sales 5 years ago to more than 50% of sales today.
There is also strong demand for customization, including Blonde Espresso as an alternative to our bolder signature roast and plant based milk and cold foam for our cold coffee and tea beverages. I'll share a few examples. Cold Foam is a cold froth skim milk designed to be a perfect creamy finish to our cold beverages. Launched this spring, we are just beginning to explore some of the opportunities here as evidenced by our latest offering, the salted cream cold foam cold brew. Draft allows us to extend beyond cold brew and has proven highly incremental, especially for occasional afternoon customers.
We're accelerating this platform to more than 2,800 stores by the close of fiscal year 2018 up to more than 6,000 stores by year end fiscal year 2019. We're also exploring multi tab systems to add customization and innovation across tea and milk. We expanded our refreshers line with the new Mango Dragon Fruit whose performance helped fuel strong double digit growth in the overall Refreshers platform. And we introduced several a premier retailer of specialty coffee, leaning into cold focused beverages and platforms is where we can further differentiate, premiumize and continue to lead the market. Our third priority is digital.
Our digital flywheel remains a compelling opportunity to connect with customers in a personalized way, driving convenience, product awareness, value and ultimately incrementality. We now have 15,100,000 active Starbucks Rewards members, up 14% year over year, driving 40% of tender in the U. S. Spend per member has grown in the mid single digits range with mobile order and pay representing 13% of transactions. We'll significantly enhance the appeal of the rewards program next spring when for the first time customers will be able to redeem different amounts of stars for different products, giving them a choice to use stars sooner for lower ticket items or save for higher ticket items like lunch, packaged coffee and merchandise.
We're also quickly building a strong base of direct digital relationships with non SR customers, registering $6,000,000 since March. We're marketing to them with special offers including invitation only happy hour and as we learn more about their transaction histories we'll target increasingly relevant offers to drive more incrementality and engagement. This expanded focus on digital is expected to drive an incremental 1 to 2 points of comp by year end fiscal year 2019. In closing, we recognize the work we need to do to deliver transaction growth in the U. S.
And have balanced plans and talented teams in place to deliver against those expectations in the coming quarters. I'll now turn the call over to Belinda.
Thank you, Ross. Good afternoon, everyone. I appreciate the opportunity to speak to you from Shanghai in order to expand on Kevin's comments around Starbucks' solid foundation in China, put our Q3 performance in context and provide details on the steps we're taking to deliver comp and profit growth consistent with our historical performance and future expectations. Relative to our historical success, we believe the minus 2% comp we posted in Q3 is not a reflection of the strength of our business and brand in China. On the contrary, I assure you that the enormity of the opportunity that we shared with you at our China Investor Day remains fully intact.
Let me take you through the factors that combined in somewhat of perfect storm to drive our Q3 underperformance. And when I explain what we're doing about each, I suspect you'll leave today's call confident in our understanding of the transitory situation and in our action plans to resume the level of consistent profitable growth that both you and we expect. 1st, as Kevin mentioned, we're making progress on our plans for delivery across China. We start this fall in Beijing and Shanghai with plans to expand across the country as we enter calendar 2019. We're fine tuning details and approach over the coming weeks, fully confident that delivery will enhance the premium Starbucks experience our customers expect, fueling comp growth and financial performance in FY 2019 and beyond.
The delivery opportunity has enabled a different, yet not unusual competitive retail environment in China. Starbucks' success, growth and sustainable long term business approach has incented upstarts and other players to enter the coffee business from time to time. Yet, over the long term, the focus we put on the quality of our coffee, the passion of our partners, beautiful third place environments and the premium Starbucks experience we deliver has always set the bar for performance and market success. While recent coffee market entrants have chosen to capitalize on delivery, combined with heavily discounted offers, there are significant compromises at play in terms of quality, experience and business sustainability. These will prove to be short lived.
Let me assure you that our new delivery service will adhere to the high standards our customers in China have come to expect with regard to the Starbucks experience. And we're fully confident that the holistic and premium nature of our experience in store or delivery and the quality of our products will differentiate our offer to customers as we expand our business in China. While we do expect to see some residual comp headwinds as competitive promotions unwind over time, we do have a strong plan going forward. Besides delivery, we have broad reach and depth in the digital space. Starting in June, we have now extended our digital social gifting on the Alipay platform, which today boosts 520,000,000 monthly active users, providing a new channel, which we can communicate and engage with our customers and drive transactions to our stores.
We also have a strong pipeline of innovation. This includes doubling the availability of our coffee meets ice cream product line to 1100 locations, extending our successful Cofoam innovation to include 3 new offerings, Cofoam Caramel Macchiato, Green Tea Latte and Cold Brew, and up leveling our bakery platform. These have all been big hits in early testing and we are excited to expand these offerings to more customers this quarter. Finally, in Q3, we did experience higher than expected levels of sales transfer from existing stores to new stores due primarily to the acceleration of new store openings in the first half of the year. We intentionally choose to move faster in key investment clusters to seize specific opportunities, resulting in 60% more store openings in the first half of FY twenty eighteen versus the prior year, excluding East China.
While this acceleration has temporarily impacted comp growth, we continue to achieve best in class performance from new stores opened in the last 12 months. I am absolutely sure that our intentional and strategic investment actions were the right moves to set us up for strong future growth in both market share and profitability. Looking ahead, the pace of new store openings should result in more typical levels of sales transfer. We remain on plan to add 600 net new stores per year and to achieve our goal of 6,000 stores in 230 cities across Mainland China by the end of fiscal 2022. Starbucks continues to invest in China for the long term.
In closing, I would like to share a few thoughts. Number 1, there is no substitute for our 47 year history of sourcing, roasting and blending the world's highest quality Arabica coffees or our direct connections with coffee farming communities around the world, including Yunnan in China. The proof and the quality are in the cup. 2, we have learned from our 19 year experience and developed a very strong brand and a profitable and sustainable operating model in China that competitors have yet to figure out and will never be able to replicate. 3, we will continue to build our business in China by fostering deep connections among our partners, their families, our customers and the communities we serve.
4, we're proud to deliver a 3rd place experience that inspires and fosters human connection that is relevant to the Chinese consumer aspirations. This will continue to be a majority of the specialty coffee occasions in China and our business for the years to come. 5, our world class retail locations, store footprint and design, unit economics, growing CPG presence and new delivery capability ideally position us to continue to lead in the marketplace and deliver venti sized returns. I assure you that Starbucks' runway in China is wide and long, and I remain absolutely convinced that China will become Starbucks' largest and most strategic market in the world. Thank you.
And I'll now turn the call over to Scott. Scott?
Thank you, Belinda, and good afternoon, everyone. Starbucks consolidated revenue growth was in excess of 7% after adjusting for 4% of favorable impact from streamline activities and FX in Q3. And despite falling short of forecast, reflects the underlying strength of the Starbucks business and brand around the world. Our Americas business reported 6% revenue growth despite challenging macro and Starbucks specific operating environments. Capp reported 11% revenue growth after adjusting for 35 points of streamline activities in FX, with China revenue growth once again in the high teens on the same basis.
Channel Development delivered 10% revenue growth after adjusting for 4 points of streamline activities, and EMEA delivered 6% revenue growth, excluding 4% of FX favorability. The bottom line is that we continue to gain share in virtually every market where we do business domestically and around the world. At the same time as we make meaningful progress against our commitments to deliver sustainable growth at scale. Non GAAP operating margin of 18.5% represented a decline of 2 30 basis points year over year, primarily driven by 130 basis points from incremental investments related to the U. S.
Tax law change and estimated anti bias training impacts. Product mix shifts largely related to food as well as planned partner and digital investments also contributed to the decline. I'll now take you through our Q3 operating performance by segment. The U. S.
Reported a 1% increase in comp growth, driven by 2 points of growth in core beverages, including espresso, tea and refreshers and one point from food. This was offset by over 2 negative points related to softer than expected blended sales, well below what we forecast for the quarter. Consistent with recent quarters, peak transaction volume was strong with softness continuing in the afternoon, primarily in frappuccino sales. Separately, I want to highlight that the estimated impact of anti bias training to comps was slightly less than 1 half point. Americas non GAAP operating margin declined 250 basis points to 21.9%, largely attributable to 150 basis point impact from U.
S. Tax law related investments and the estimated impact of the anti bias training. Net of these items, our Q3 margin landed roughly where we originally forecast and showed improvement from Q2 levels. Moving on to China Asia Pacific. CAP revenues exceeded $1,000,000,000 for the 2nd straight quarter, reaching a record $1,200,000,000 in Q3.
Japan revenues grew by 6%, excluding 2 points of FX favorability and Korea, our 5th largest global market, delivered system revenue growth in the mid teens, driven by a 6% increase in system comps and contribution from net new stores. Noteworthy is that CAF grew non GAAP operating income by 30% despite a 310 basis point decline in non GAAP operating margin to 25.2%. The decline in operating margin was primarily due to a 280 basis point impact from consolidation of the East China business. Excluding the consolidation, CAF margin was down slightly to prior year. CAF remains a huge growth opportunity for Starbucks, both inside and outside of China, made even more so by the exciting longer term CPG and foodservice opportunities presented by the Nestle Alliance.
Let's turn to EMEA. EMEA delivered roughly flat comp growth in Q3 in the face of continuing economic and competitive headwinds. System wide comps, however, came in at a solid plus 3% in the period. EMEA's non GAAP operating margin expanded by 3 10 basis points in Q3, driven primarily by strong performance from licensed stores. We remain encouraged by the improved performance in EMEA with both operating income growth and meaningful margin expansion and convinced that the portfolio shift to licensing will result in further increases in profitability as we move into 2019.
On to channel development. Channel development had a very strong Q3. Starbucks continued to outpace industry growth, adding another point of share in roasting ground to reach 13% dollar share and continuing to lead premium brands in the K Cup coffee category with a 16% dollar share. Channel Development's non GAAP operating margin was 42.7%, solid performance given the maturity of the coffee category and increased competition down the aisle. As we close out fiscal 2018, most of our targets remain consistent with previous guidance, but I'd like to highlight a few specifics.
We continue to expect consolidated revenue growth in the high single digits, excluding approximately 2 points of favorability from the East China acquisition and other streamline driven activities. Full year comps will likely come in just below our 3% to 5% range and we expect Q4 to be at the lower end of this range. We remain on plan to open approximately 2,300 net new Starbucks stores globally with best in class operating margins in both company owned and licensed markets. We continue to anticipate a moderate decline in full year operating margin for both total company and the Americas compared to 2017, inclusive of the incremental investments we are making in our partners and digital initiatives following U. S.
Tax law reform and the impact of the anti bias training. However, we now expect a slight year over year decline in operating margin in the Americas for Q4, reflecting somewhat lower than initially expected comp growth. Within the CAP segment, we continue to expect operating margin to be down moderately in fiscal 2018 relative to last year due to the consolidation of East China. Excluding this impact, we continue to expect cap operating margin to be moderately higher year over year. We still expect EMEA's operating margin to be flat adjusted for FX compared to 2017.
We still forecast revenue growth in the mid single digits for channel development in fiscal 2018, excluding the impact of Tazo and the 2017 revenue deduction adjustments. And we continue to expect Channel Development operating margin to decline moderately in FY 2018 relative to the prior year, a result of increasingly competitive market conditions discussed on prior earnings call. As a refinement to our EPS guidance in June, we expect fiscal 2018 GAAP EPS in the range of $3.26 to $3.28 and non GAAP EPS will be in the range of $2.40 to $2.42 up approximately 17% from last year. Importantly, this guidance factors in the full $0.03 impact of anti bias training for U. S.
Partners, including the portion that carried over into Q4. These EPS estimates also assume that the pending Nestle transaction closes on or after the final day of fiscal 2018. We anticipate that the Nestle transaction could close as early as the end of August, which would result in a dilutive EPS impact of $0.02 to $0.03 in FY 2018. I would remind you that we expect revenue and EPS to be negatively impacted in 2019 by 2 points to 3 points each as a result of this transaction, with the range around the final number driven primarily by the potential accounting treatment for the $7,200,000,000 upfront payment. Finally, I want to talk a bit about G and A savings and the 1% of system sales reduction target we introduced last month.
Ross will be leading this effort with my support and this is a 3 year goal for us and we anticipate it to be somewhat front end loaded with 35% to 45% of the savings occurring next fiscal year on a run rate basis. By way of background, we remain focused on improving both our operating efficiency and how we work and plan to use portion of the resulting savings to fuel investments for future growth. These will be thoughtful high impact savings that speed up decision making and enable us to focus our efforts on the largest growth opportunities. It is not just a cost cutting exercise. Working with our outside consultants, we have already identified significant savings opportunities in areas such as improving spans and layers within our organization.
Before handing the call back to the operator for Q and A, I want to thank everyone for their support of my recent decision to retire. I will always be deeply appreciative to Kevin, Howard and the Starbucks Board and the leadership team for their partnership during my 7 year tenure at Starbucks and for their support in my decision. I'm also deeply appreciative to the over 330,000 Starbucks partners around the world who wear the Green Apron. Over the past years, I've also come to know most of you on today's call. I thank you for your engagement and your support of Starbucks and of me.
I can say without equivocation that the best days for Starbucks lie ahead. With that, I'll turn the call back to the operator. Operator?
Your first question comes from Sharon Zackfia with William Blair. Please proceed with your question.
Hi, good afternoon. I guess, a question on a question on the development outlook for the Americas as you focus on the center and southern portions of the country. Can you give us kind of some perspective on how those AUVs look versus the rest of the country? And I know you mentioned they're lower costs, but I'm thinking maybe they're also lower revenues. Any perspective on what the new units might look like going forward versus maybe the class of 'seventeen or class of 'sixteen?
Sharon, this is Kevin. We'll have Roz talk a little bit about where we're focused on store bills and then Scott will follow-up on the part of your question around the economics.
So, first of all, if you just look at our quarterly revenues, 4 points of our revenue growth came from new stores And in that configuration is quite a bit of Mid America and Southern States. So we're already seeing that performance play through for us. So we're encouraged by what we're seeing with our current portfolio. Going forward, we are focusing in that area. I will tell you that in areas like Seattle and Manhattan, while we're encouraged by the business that we have in those areas, we are putting less units in those two geographies, but at the same time, they're highly dense areas with increased occupancy cost and increased labor spend in those areas.
So we're already seeing the performance from our current portfolio that is already targeted towards Middle America and the southern parts of the state. So we're encouraged by what we're seeing and so we're going to continue that process.
And I would add as we move towards more drive through, Ross referenced 80% or more drive throughs, we've actually seen the AUVs accelerate over the past 4 or 5 years. So even as we've gone into some of those suburban areas, the drive thru format has about 25% to 30% more revenue than our typical in metro non drive thru format. So the waiting out of those drive thrus are actually both quite high AUVs and really good profitability.
Our next question comes from the line of John Ivankoe with JPMorgan. Please proceed with your question.
Hi, thank you. I was hoping just with the amount of kind of puts and takes in G and A, if there's a dollar amount that we could talk to maybe in fiscal 'nineteen and fiscal 'twenty, maybe even beyond as you think about really the potential of the business from an efficiency and effectiveness point of view because obviously I have there's a lot of different ways to look at this percentage of system sales, percentage of revenue per store basis, what have you. I was hoping if you could help steer us just in terms of the actual dollar type of number that might be the right level of spend for Starbucks going forward?
Thanks, John. It's Scott. Let me just try to narrow the range in a bit for you. We're literally in the middle of our annual planning process. So we'll come back in the fall and give you more specifics.
But let me try to tighten in the range because I know it's hard to model. First of all, what we've talked about is one point of system sales and just to roll forward system sales, the last time we talked about it was in our December 2016 Investor Day. We said it's about $30,000,000,000 So if you grow that at the rate of revenue, we're somewhere in the mid-30s, call it, the $35,000,000,000 range. We'll be at around a point of that building over 3 years. And what I said in my prepared remarks is we think 35% to 45% of that comes on a run rate basis in 2019.
So the way that we'll when we get into the fall, we'll take a look at 4th quarter exit rate of G and A as a percent of system sales. That will be our peg point. And then we'll roll forward 3 years to take 100 basis points or approximately 100 basis points out of that with 35% to 45% of that coming in 2019. So that should allow you to narrow it in a little bit. Obviously, there is some range around that as we get into the specifics of exactly how quickly we can execute on some of these things where the big opportunities lie, but that allows you to tighten up your modeling a bit, I think.
Your next question comes from the line of Jeff Bernstein with Barclays. Please proceed with your question.
Great. Thank you very much. Just a question on China broadly. I know a few weeks back when you guided for the quarter, you were talking about maybe flat to modest negative comp. It seems like it came in down 2%.
So I'm wondering maybe if you could just talk about the trend through the quarter. And more importantly, I guess, just looking back over the past few quarters, it seems like it's been a fairly steady decline from the high single digit to the mid single digit to where we are today. So it would seem like there are some factors above and beyond maybe just the perfect storm that is the fiscal Q3. Just wondering if maybe you could talk a little bit about the broader macro headwinds that perhaps China is seeing there or maybe just how you distinguish between what unit cannibalization might be versus maybe if there's some consumer pushback. I'm just wondering how you assess those two things to make sure the business is still as healthy as you think it is?
Thank you.
Yes, Jeff. This is Kevin. I think we'll have Belinda talk a little bit about what she saw in the quarter. I think we're we don't think it's always helpful to go into trends within the quarter, but I think let's get Belinda an perspective of the health of the brand, the health of the business in China. Belinda?
Okay.
Hi. Thank you, Jeff, for your question. First of all, delivery as a whole is becoming a lifestyle ritual in China and consumer behaviors are changing. This is a trend we'll be addressing through Starbucks delivery to complement our 3rd place in store strategy. 2nd, its competitive landscape in China, which we'll also address through our delivery services as well as our growth agenda we shared during our Investor Day with our elevated Starbucks experience and the innovations that we do.
3rd will be the higher than expected level of sales transfer that I shared before from existing stores to new stores. That may have an impact in the short term, but for sure, the right thing to do to expand our market share now and in the long run. Don't forget, operating in a developing coffee market, we need to continue to grow our presence through new stores. This means more than 75% of our growth comes from new store. And we needed to do that because we're in the developing coffee market.
We need to cultivate coffee culture. We need to share coffee with people who have never tried coffee. And our comp accounts for 25% of our growth. And we will continue to innovate and deliver meaningful and relevant experience to our customers to drive comp, but again, growing greater market share in this market. So I have no doubts that China will be back on track very soon in terms of our comp.
So thank you.
Yes.
And Jeff, let me just reinforce a couple of key points that I think are on point. This is Kevin. First of all, as Belinda said and as I said in my comments, the market in China, we are in a market growth phase that is all about new store expansion. The fact that we're in 100, roughly 130 to 140 cities and expanding into the next 100 cities over the next 3 years is critical. And the reason we grew transactions in the mid teens in China is because of new store growth.
And it is where through that expansion that we're enabling the brand to not only deepen its engagement with customers in the cities that we're in, but also to expand into new cities. And so I think as Belinda highlighted, those our stores are performing. They're some of the most profitable stores in the world. The new ones we're building are the most some of the most profitable stores in the world, and it is about store expansion. And so, I just want to reinforce that point because that is the core strategy for China right now and it will be for the next several years.
Your next question comes from John Glass with Morgan Stanley. Please proceed with your question.
Thanks very much. Your comp guidance, if I'm reading this correctly, for the Q4 is 3% or so, at the low end of 3% to 5%, which I guess surprises me in the context of where you landed this quarter, and particularly in the U. S. So can you just talk about why you think that's a conservative or reasonable number? Can you also just talk, I know you mentioned June was where you thought it was, is July a similar number and how much of that is a pricing overlap?
In other words, is traffic improving in your business? Is that what you're getting you more confident? Or is that still an area of attention and it's really just the price mix that's maybe benefiting comps right now?
Yes. Well, let me just I'll start, John, on the question, then I'll hand over to Ross to add a bit more on the mix of things that are driving it. But first of all, I commented that following the Oppenheimer comments, the quarter unfolded as we anticipated, just re confirming sort of the statements we made at Oppenheimer. I don't think it's helpful to get into intra quarter trends because that, think, confuses the issue. So what gives us confidence?
Well, you look back at this last quarter, Q3, I mean, we had some very unusual things we had to navigate in the quarter. Certainly, the situation in Philadelphia and the fact that we closed all our stores for an afternoon, that had an impact. But also the fact that we delayed the launch of the springsummer marketing campaign by 2 weeks or so in that quarter, we lost some momentum. And since we then deployed that, we clearly saw we were gaining momentum and so that gives us some optimism in terms of what we're doing. 2nd, our digital customer base has grown dramatically.
Look, we've grown our Active Rewards members by 14% to 15,100,000. We've added 6 1,000,000 of these digitally registered customers that we are now learning how to engage with and figuring out how to drive some more engagement with them. That combined with the pipeline of beverage innovation gives us confidence as we look forward and into this quarter. Let me hand over to Ross to talk a little bit about his question on pricing and attach and things that are driving some of the ticket there. And Russ, I'll let you comment on that and maybe Matt on the pricing.
Yes.
Sure. Let me give a little bit more flavor to our comp performance. So first of all, I'll start off with, you break down our comp, we've got 2 points of that coming from beverage and quarter, both our core coffee beverages, our innovative new products such as draft and refreshers. So we're seeing growth in every category. We're seeing food attachment from our breakfast sandwiches happening.
We're up to about 22% of our portfolio is food. So we're seeing that have a nice impression on our ticket. We're still growing in morning peak and that's our most important daypart and we're still seeing growth in the morning. And then lastly, I will tell you we're seeing strong performance of our new stores that we just talked about that we're placing in these markets of Middle America and in the South. So that gives us encouragement that we're on the right track.
Just the isolation of moving transactions is our focus and we need to get those transactions through our beverage growth. And when Kevin talked about the afternoon day part, it is a soft part of our business. The marketing campaign that we ran through the beginning of the spring is still ongoing. It's actually the largest media spend we've done in a while, consistent, focused on afternoons and absolutely focused on a new occasion in the afternoon with teas and refreshers. So we're going to maintain our plans to continue this work that we're doing because we're encouraged from what we're seeing right now.
Your next question comes from David Palmer with RBC Capital Markets. Please proceed with your question.
Thanks. Good evening.
David, you're breaking up. David, you're breaking up. Can you start over?
Yes. I wanted to ask a question about the U. S. Business. It looks like the afternoon and beverage contribution to growth has been a particular problem.
Could you talk about that? And given the fact that you're now seeing digital user growth resume that takes off the table that as an issue. So I guess the question is, how much do you think the U. S. Comp slowdown has been a beverage innovation problem versus other not having a cold brew or a Teavana shake and tea and how do you feel about the beverage innovation pipeline at this point?
Thanks.
Let me take sort of the first response to that, David, and then I'll hand over to Ross to talk a little bit about the beverage innovation pipeline. First of all, the most important daypart for Starbucks is the morning daypart and we are growing comp in the morning daypart. We're growing transactions in the morning daypart. The area that we've highlighted that we've had softness has been that afternoon from 2 on and then evenings from 4 p. M.
On. So when we look at this, the fact that the morning day part that's growing is a very, very, very positive metric. Number 2, when I look at the beverage portfolio and I look at the core platforms, coffee, espresso, tea and refreshers, all of those are growing. And they're offsetting the softness we've had in blended. So all of a sudden, you start to intersect the issue around blended and afternoons sort of been amplified in this quarter because this is the quarter of frappuccinos.
And so you put that together and I think much of that is sort of explained. Now as Ross mentioned, the campaign that we have for the afternoon and the cold beverages that we're driving around afternoon made, I think we're feeling good about that. Let me hand over to Raj to talk a little bit about the pipeline of innovation.
Sure. So we actually feel pretty good about the velocity and innovation at Starbucks in terms of the beverage business. First of all, we're seeing a strong shift to cold and we're playing directly in that space. Our mix is up to 50% with our cold mix of our beverages. And if you look at everything we focused on in terms of our newness, it has been a cold beverage.
In addition to the addition of our blonde espresso at the beginning of the year, we're seeing our customers customize even their cold beverages with blonde espresso. So focusing on innovation in core coffee and then innovation in blended with the premium frappuccino, we introduced 3 of those this quarter and we're pleased with how those 3 are moving for us. We've also customized with cold foam and we're getting momentum on refreshers and teas. And then not only the innovation on beverages, but in food. And so we introduced a new egg bite, sous vide egg bite this quarter.
We're encouraged what we see there. And then when you combine that kind of innovation in food and beverage with what we're doing with the acceleration in digital, We're matching all the customer information that we're gathering with what their needs are. One thing I will isolate is that our cold brew is really resonating with our male millennials. So when we wrap our arms around our consumer driven needs for the growth in our business and the innovation, it sends us directly towards the cold platform and continuing to innovate in our core coffee business. So we actually feel pretty good about our beverage lineup and the innovation pipeline.
Your next question comes from Sara Senatore with Bernstein. Please proceed with your question.
Hi, thank you. A question about the U. S. Unit growth and then just quick follow-up on China. In terms of the U.
S. You said you're talking you're testing a new approach to portfolio management. Is that with reference to the mix of company operated versus licensed or is it about how you evaluate stores more perhaps more quickly and decide whether they're meeting their hurdle rates? Just trying to understand what that might what implication that might have for store growth going forward. And then on the China piece, I know you're seeing some cannibalization, but I'm also curious, I would assume there's a pretty steep maturity curve in China.
So aren't you seeing any kind of offsetting comp lift from that?
We'll have Sarah, let's have Ross take your first question on U. S. Unit growth
store growth. So we're still adding a significant number of stores on both our company owned and our license units. And I will tell you what we're doing is looking very closely at managing the trade areas in terms of where we play stores. And then there's a second piece to that, Sarah, that talks about the formats that we place. So, I think you're aware that 80% of our portfolio going forward, actually approaching 90% now is drive through, but we're also looking at exactly where those drive throughs can complement an express unit or complement a cafe.
So we're looking very surgically at where we place our units and being really smart about that with the focus of the geography in Middle America and the Southeast. And so you'll see that play out in our stores coming forward and we are not slowing our growth in those concentrated areas.
Belinda, you want to talk a little bit about China?
Yes. Sarah, hi, Belinda here. I assume you mean the specialty coffee market in China being mature or maturing, this is not the case at all. I think we shared stats before on 300 cups in U. S.
And then 0.4 in China. And we're working hard to cultivate a coffee culture here, even in Tier 1 cities like Beijing and Shanghai. So there's plenty of room to grow. And with the middle class up and coming, more and more people our job is to make sure more and more people get to try what we love, which is coffee and sharing our passion. So there's plenty of room to grow.
Hey, Sarah. Also, this is John. Just to add to the discussion around China on the maturity curve, if you're talking about the new store growth. And when you look at our new stores, we track very closely how the new stores perform once we open them and through that 1st year and then as they enter the comp base. We've got a very disciplined approach where we review that every single month.
As we shared previously, the store payback of the new stores is within a year of the opening. And as they enter the comp base, they enter the comp base at a very consistent historical level of the stores that are currently sitting in the comp base. So we feel very good about this maturity curve and the fact that it hasn't really shifted that much at all from a historical standpoint, and we feel very good about continuing to build out the store footprint based on the fact that our new store performance continues to exceed all the expectations. And the returns are very, very healthy and overall store level profitability of those stores as well as the whole portfolio is very healthy. And that gives us optimism for the future.
We talk about the importance of comp. That's clearly important. But at the end of the day, as Kevin shared, it is about new store growth right now as we seed the market and develop this coffee culture. Last quarter, we grew revenue 17%. We grew transactions in the mid teens.
We continue to grow overall transactions in the marketplace, attracting new customers into our stores, as well as continuing to elevate the frequency of our existing customers. And so we feel very good about that. And then just one other point I would put on China is the work that we're doing on digital and the fact that we now have 6,700,000 active MSR members. And when you break that down on a per store basis, that's nearly double what we have on a per store basis to what we have in the U. S.
And you couple that with the work we've done with Alipay, social gifting, with WeChat, social gifting, we are building a very robust digital ecosystem. And then you add delivery on top of that, we see very long runway for growth for us in China for many years to come. And that's why we're still very optimistic and very strong belief in the growth plans and the strategy that we've built for the market going forward.
Your next question comes from Matthew DiFrisco with Guggenheim Securities. Please proceed with your question.
Thank you. My question is more with the U. S. I guess just 2 pronged here. Looking at the expansion and targeting sort of Middle America, I think for those of us who have covered the stock when you guys last closed down a large portion of stores, some of that
was Howard identifying that the middle of the
country might have seen some of tried to more densely populate those areas with your stores. Tried to more densely populate those areas with your stores. What's changed? And then I guess also looking at the comp, I guess you're one of the few restaurant companies that hasn't mentioned the word at all about value. And it does seem like value is what is driving the customer, whatever that means for each individual brand, respectively.
How are you addressing the value equation to the customer who's not the My Starbucks Rewards customer?
Yes, Matthew, this is Kevin. I'll start and share perspective and Mohs to add. But first of all, what's changed in terms of the store performance in Middle America? Well, apparently, Americans in Middle America like espresso beverages and our coffee because those stores are performing at higher AUVs and higher profitability than any other part of the country. And so, I don't know what the great performance from those stores.
We're using as I outlined at Oppenheimer, we're using, We're using as I outlined at Oppenheimer, we're using analytics to really look at the store the number of stores per capita that we have in areas. We look at the demographics in those areas and we're using technology to help us inform us where to go build these stores. And since doing that, it's worked. So it's I think the fact that just proven by the store performance we're getting on those new stores that we've been building throughout Middle America and the South, they're performing well. I think the other part then in terms of value, the core beverage platforms of coffee, espresso, tea, refreshers are all growing.
The morning day part is growing. When we think about the differentiators for Starbucks, we differentiate around a premium coffee, a premium experience, and we differentiate by doing custom handcrafted beverages at scale. And that is why our morning daypart just keeps growing. That is the core value proposition for our customers. And in that daypart, we are growing, we're growing strong and we feel good about that.
As Rod mentioned, we have in the afternoon daypart, we've had some softness in afternoon, and we've seen softness in the blended platform that we've been working to address. I think, as I highlighted some of the consumer trends, this need state of convenience, we really have unlocked that, I think, in a way, not only with mobile order and pay, but with our drive thrus. And that's balancing then the experience we create in our stores around the 3rd place around community. And so, I think if we just look at both what we've learned over the last decade and the performance of the investments that we've made in those store formats, in those geographies, in our beverage platform in the morning day part, those things give us confidence that we're absolutely on
the right path. And Matt, I would just add, when Raj talked about our store growth, she said that Middle America and across the South. And the South is actually the bigger piece of that growth when I look at the numbers. So you're talking about Southern California, Texas, Arizona, the Southeast, Florida, these are markets with a lot of growth. And in addition to the middle part of the country, which is doing great as well, we're just seeing really strong performance in those markets with drive thru.
It's completely core to the move towards cold beverages and iced coffees. It's completely core to drive thru in the suburban strategy that we have. And so I would just broaden the Middle America part to definitely talk about the broad swath of the Southern U. S.
The last question comes from Matt McKinley with Evercore ISI. Please proceed with your question.
Thank you. Kind of a quick point of question about clarification on what you said and then I have a question about China. In the guidance commentary, you noted a slight decline in the margin in the Q4 year over year. Was that driven by trends that you're experiencing already in July? Or was that more of a general comment about Q4 relative to what you saw earlier in the year?
And then on China, Belinda earlier in the year you noted that the China JV stores were not that were not in the comp base were slightly below the stores that are in the comp base. Did that gap narrow as the year went on? Or when you experienced a slowdown in the stores in the comp base, did that they all kind of move in the same in tandem if you will?
Yes, my comment on the margin wasn't indicating anything in July. I think it's really just consistent with the guidance we gave last month around lower overall profitability both in the 3rd and 4th quarter. And obviously, we had hoped when we started the year that the 4th quarter margin would be roughly flat year over year and we make good progress this quarter if you take out the anti bias training and the tax investments and we'll make good progress next quarter. But I'm just simply saying we're probably not going to quite get to flat, which was our initial guidance. So I was just sort of chewing that up.
And Belinda, do you want to handle the second part?
Sure. Hi, Matt. Each China comp over the past few years has been somewhat below the rest of Mainland China, just as you said, due to the significant pace of store openings in that market and some other opportunities we're
executing on after East China,
its fully owned company comps in And over time, we expect the comps in these two pieces of the business to converge. But I'm happy to report that East China integration is progressing on track and the region is posting P and L performances in line with our expectations.
That was our last question today. I will now turn the call over to Mr. Shaw for closing remarks.
Thanks. And for your planning purposes, please note our Q4 2018 conference call has been similarly scheduled for Thursday, November 1. In addition, we look forward to seeing many of you at our 2018 Biennial Investor Day on Wednesday, December 12 in New York. Thanks again and have a great evening.
This concludes Starbucks Coffee Company's 3rd quarter fiscal year