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Why You Should Buy Starbucks’ Dip

1151 words - 5 pages

Although there are several specialized coffee players in the market today, one cannot overlook the magnitude of success and grandeur that Starbucks has achieved over the past many years. Its fast-growing coffee house along with tea and sandwich restaurant chain now makes it a dazzling investment idea.

More than just coffee
The company’s founder and CEO, Howard Schultz, has been successful in creating Starbucks into something that we didn’t really know we needed until we had it. He has meticulously crafted a brand for the company that adds a psychological value to its offerings. Thereby, when you buy a cup of coffee at Starbucks, you buy an experience. The somewhat quiet, not-so-rushed ...view middle of the document...

It is growing into new areas such as premium juice, pastry, and specialized tea with acquisitions of Evolution Fresh, La Boulange, and Teavana, respectively. Tea is the second most consumed beverage in the word, after water, therefore the move to cater to the tea market holds a lot of promise for the company. In the West, where coffee is more popular, the company aims for a paradigm shift in consumer demand toward tea, making it as popular consumer choice. Further, the company has launched new La Boulange breakfast and lunch items intended to lift its comps. Despite a few bumps in the road, the new menu rollout has been a success.

On the technology front, the company is revolutionizing retail through its mobile application. Accordingly, its loyalty cardholder can earn rewards and pay through the mobile phone application. This is already showing signs of success as one in every seven customers in the US are already transacting with their mobile phones. Recent updates to the app enable customers to pull up their card by shaking their mobile device and tip baristas on their smartphone.

International Expansion
From a small group of coffee stores in Seattle, Starbucks has turned into a global chain with 20,184 stores in as many as 60 countries at the end of the last quarter. For fiscal 2014, the company targets to unveil approximately 1,500 net new stores, 750 of those stores will be opened in China/Asia-Pacific (CAP) region while another 150 in Europe, Middle East and Africa (EMEA) region. This should give you an idea of the immense growth potential it has in the overseas market. The coffee house giant has a burgeoning market in countries that prefer tea like China and India. During the fiscal-first quarter of 2014, it opened two-third of its 417 stores outside the Americas. In doing so, it surpassed three milestones: 4,000 locations in CAP, 2,000 locations in EMEA, and 20,000 total locations worldwide. With a good start to the year, the 1500-store target in current fiscal seems easily achievable.

Solid fundamentals
As illustrated in the chart below, Starbucks has continuously grown its revenue for several years now. In comparison, Dunkin Brands Group (DNKN) and Krispy Kreme Doughnuts (KKD) have observed, if at all, ordinary revenue growths. In the most recent quarter, the company’s revenue increased...

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