Specialty Food Retailing
I mentioned in subsections 5-6 of the book “The Rules of Super Growth Stocks Investing” that it is a company that has been confirmed to be successful, and the stock has been split 6 times so far. My blog post “Discover the possibility of super growth stocks in the civilian production industry” is an article, use Starbucks as an example, to deny it is difficult for non-tech stocks to find super growth stocks.
Starbucks (ticker: SBUX) is a US-listed company that is difficult to classify because it is a special company with food, beverage, retail, e-commerce, and technology at the same time. This is also the reason why many large and small companies came to learn and want to cooperate with Starbucks.
Symbolic representation of American culture
If you ask people from different countries, symbols representing American culture, you will get such symbols as Coca-Cola (ticker: KO), McDonald’s (ticker: MCD), Nike (ticker: NKE), Apple (ticker: AAPL), etc. Different answer, but Starbucks will definitely be in the answer. This shows that Starbucks’ influence is no longer limited to the United States; these companies obviously have brand advantages and customer loyalty, which are intangible corporate values and represent the power to increase prices.
The unique moat
In addition, when Wall Street is discussing Starbucks, in recent years, it has pointed out that this company has a unique advantage, and it is also a moat that is difficult for other companies to have—the third place; that is, your home, work or school beyond the places everyone goes, most people think of their first choice for a date or meeting. This is a brand new concept, and it is also the corporate competitiveness that few listed companies have.
Note: Ray Oldenburg coined the term “third place” to refer to holding “regular, voluntary, informal, “Pleasant party” place.
Founder equals Starbucks
Founder Schutz has returned to the CEO position twice, both times when the company is facing crisis, and this time is no exception. The first return has pull the declining Starbucks back on the track of growth and correct corporate culture. Of course, investors have given great affirmation. But this comeback is different from the last challenge. In addition to the lack of business growth, the most important thing is that the situation in the world has changed a lot. But the main thing is that it is extremely difficult, and Starbucks was once proud of it. The company’s cultural factors include employee unions or strikes in various locations.
Schutz has already indicated that his return as CEO won’t last long this time around. His task is to hopefully find the right person for the company by the end of the year. Wall Street is less excited about his return this time than he did the first time, because if a company can only rely on one person to run it, even if he rescues the company this time, after all, a company cannot be ruled by other people. A business without a successful successor will not be evergreen or a great business. At the moment, things are not going well, and the stock price certainly reflects investors’ views on the matter.
In short, the founder’s repeated return as the CEO is a serious warning sign for the company, especially for a company like Starbucks that has been affirmed in all aspects and even represents the export of American culture. It is definitely unfavorable.
Technology innovations
Starbucks is an early company that adopt mobile payment applications, and the implementation was very successful (the company has more than 1,000 full-time software engineers), causing many companies to take Starbucks as a model of technological innovation. Leading the company from 2017 to 2022, the former CEO, Kevin Johnson,who just left is from the technology industry who has served as executives of IBM (ticker: IBM), Juniper Networks (ticker: JNPR), and Microsoft (ticker: MSFT).
How successful is Starbucks’ technology use? Members who place orders through Starbucks’ mobile app account for nearly 50% of Starbucks’ revenue, and 1/4 of the company’s transactions come from Starbucks mobile phone orders and payments.
Memberships
Among the listed companies in the United States, Amazon (ticker: AMZN), Costco (ticker: COST), and Starbucks, because of the amazing number of members, the scale of the company, and the continuous introduction of new benefits and rewards, many customers are happy to join as Starbucks members. At the end of 2021, it had 26.4 million members in the U.S., growing 21% annually.
The success of membership system can bring many benefits to the business:
- Another type of product subscription system can bring stable cash flow. This is a recurring corporate income and is also the favorite business model of investors.
- It is easy to scale and facilitate the promotion of products or various sales programs.
- Customer loyalty.
Starbucks business scale
Its main competitors are Coca-Cola’s Costa Coffee and Luckin (ticker: LKNCY). At the end of 2021, it had 34,317 stores in 84 countries or regions around the world; half of them were 17,000 in the United States.
Importance of China to Starbucks
Because Starbucks is nearly saturated in all major countries, China is the only market that offers Starbucks hope. The company’s management realized this years ago, believing that the success or failure of the booth plan in China is a matter of Starbucks’ future survival.
By the end of 2021, it has 5,400 branches in China, with an annual growth rate of 14.9%.
Business performance
In 2021, product categories as a percentage of revenue are:
| Percentage of revenue | |
| Beverage | 74% |
| Food | 21% |
| Others | 5% |
In 2021, an overview of franchise and direct-operated stores’ revenue share is as follows:
| Revenue ($ million) | |
| Direct-owned stores | 24,607 ＋28.4％ |
| Licensed | 2,683.6 +15.3% |
| Others | 1,770 -12.6% |
| Total revenue | 29,060.6 ＋23.6％ |
Major financial numbers:
| Starbucks | McDonald’s | |
| Revenue ($ million) | 29,060.6 ＋23.6％ | 23,222.9 +20.9% |
| Gross margin | 32.47% | 54.17% |
| Operating margin | 16.18% | 42.51% |
| Net margin | 14.45% | 32.49% |
Valuation
| Starbucks | McDonald’s | |
| Market capitalization ($ billion) | 86.7 | 182.42 |
| Share price | 75.37 | 246.64 |
| P/E | 20.33 | 26.06 |
| P/S | 2.93 | 7.83 |
| Dividends yield | 2.6% | 2.24% |
Stock performance
Below is a chart of the stock performance of Starbucks and McDonald’s over the past decade; the blue line is Starbucks and the red line is McDonald’s:
Current predicament
Because Starbucks is a typical brick-and-mortar food retail industry, and it is a type of ready-to-eat catering that need to quickly meet customer requirements, and it is a food that cannot be prepared in advance; it requires a large number of store service personnel. Starbucks has always attached great importance to store service personnel, which is one of the main reasons why Starbucks can differentiate itself from other competitors and achieve its current achievements.
In the past, through training, benefits, slogans, culture, and a sense of honor, Starbucks has made it one of the top choices for retail employees for the past two or three decades. With the overall improvement of the environment and living standards, as well as the awakening of the younger generation (most of Starbucks employees are young employees), challenging the existing system and better welfare benefits, Starbucks stores in the United States and everywhere have become more popular. The wave of unionization among employees (currently Amazon’s logistics department is also experiencing the same problem) has become the company’s biggest operational threat.
Related articles
- “How does McDonald’s, the world’s largest fast food leader, make money?“
- “How does Domino’s make money? its stock reward beat down Alphabet“
- “How does ubiquitous Yum! Brands make money?“
- “How does Starbucks make money? and the current predicament“
- “Monster Beverage’s monster level stock returns“
- “Chipotle Mexican Grill, a new generation of fast-casual food that performed surprisingly well“
- “Coca-Cola has been inferior to Pepsi in and even return rate is negative in past 10 years!“
- “Pros and cons of investing in Coca-Cola“
- “How does Starbucks make money? and the current predicament“
- “Discover the possibility of super growth stocks in the civilian production industry”
Disclaimer
- The content of this site is the author’s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.
- I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers’ direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.
