EUR 850.00 For Business Accounts Only

Morningstar | Starbucks Owns a Powerful Global Brand, but Innovation Is Still Required to Stimulate Guest Traffic

Despite uneven U.S. traffic trends, an evolving competitive set in China, and an increase in substitute products across multiple dayparts, we view Starbucks as a compelling consumer growth story, poised for top-line growth and margin expansion through menu innovations, sustainable cost advantages, and evolution into a diversified retail and consumer packaged goods platform. Although it is already the leading specialty coffee retailer in the United States, we believe Starbucks still has meaningful domestic growth potential, including new store formats (including premium destination locations as well as smaller-format express stores, drive-thrus, and kiosks), greater peak-hour capacity via digital enhancements, expanded food offerings, lunch/evening daypart expansion, Mobile Order & Pay, and My Starbucks Rewards personalized marketing. While we appreciate investor concern about recent transaction trends, we believe these metrics will improve through new menu innovations developed at premium locations (with an emphasis on health and wellness), improved loyalty member acquisition and engagement techniques, simplified store operations/technologies, closing underperforming stores, and a reduction in selling, general, and administrative expenses.Starbucks is much more than a U.S. retail story; it's just starting to scratch the surface of its long-term channel and geographic growth potential. Many of Starbucks' core retail competencies should facilitate these efforts, putting it in a position to capture retail and wholesale market share. Platforms like K-Cups and Nespresso should support channel diversification over the medium term, aided by a new marketing/distribution partnership with Nestle. Longer term, we're also optimistic about mobile, digital, and loyalty program synergies across the various business lines; partnerships with Spotify, The New York Times, and Lyft; new payment technologies; and international opportunities in China, India, and Japan. Competitive threats exist in both the retail and wholesale channels, but a wide moat built on strong brand equity, bargaining clout with suppliers of all kinds, and a leverageable model will help to stave off rivals.