Starbucks Earnings Conference
I'm listening to a webcast of the 1st quarter Starbucks earning conference call, and I'm hearing some interesting things. To wit:
- Sbux will discontinue "warm breakfast sandwiches by the end of 2008," and will focus on providing a "healthy breakfast alternative." They claim that customer surveys revealed that the scent of warm sandwiches (which are offered in only about 4,000 US stores [or less than 50%], by the way) interferes with the coffee aroma, thereby destroying the ambiance the company thinks its customers are seeking.
- The company will continue to provide warm pastries and lunch.
- The company plans to open 1,175 "net stores" in the US during 2008 (which includes the closure of 100 underperforming stores -- not identified -- which is 6 times the prior 3 year average). It plans to open fewer than 1,000 stores in 2009.
- It will open 75 net new stores internationally during 2008, and over 1,000 in 2009 -- more openings than in the US, for the first time in its history.
- Sbux management intends to announce five initiatives that will "extend the company's coffee leadership" and "reaffirm our coffee authority."
- Addressing the test of the $1 8oz cup of brewed coffee in the Seattle area, the company says that it makes sense, so far, and it's a response to the "current economic pressures on its customers." They emphasized that this is still just a test, that the company intends to reinforce its position in the high-end coffee retail business (and, once again, to "reaffirm our coffee authority") while broadening its market base.
It's clear to me that Starbucks is responding to a plateau (at best) in US demand for its goods and services, and will focus its future growth strategy in international markets. However, given the financial under-performance of its current international stores, this strategy smacks a bit of desperation.
Yeah, if they could pull that off, I might even become a stockholder.
Posted by: Eric at January 30, 2008 08:49 PMWell, it's kind of a saturated caffeine market in the US I think. So it makes sense that they would ratchet back the rate of domestic openings. And if by desperation you mean a desperate desire to undo some of the idiocy of the past couple of years, well... good.
I haven't listened to the webcast, but the points you highlighted are a breath of fresh air. The warm breakfast sandwiches make their stores seem that much more like McStarbucks. And they look really unappealing in the display case. Yech.
Other things that I've read about the rapid deployment of changes in the wake of Schultz's return seem at least to be consistent with his stated desire of returning the company to its roots (or, to the grounds from which it sprung. heh).
I'm all for it.
Posted by: Jim at January 30, 2008 09:03 PMOur stores are not among the 4,000 that serve breakfast. Heck, we can't even get 'em to heat up a muffin.
In any event, while I'm rooting for them to do well, they're not my "third place." We have a locally-owned coffee shop that beats them hands down in that department...and they serve real breakfasts.
Anyway, by "desperate" I meant a desperate desire to fulfill stock analyst expectations for revenue and profit arrows that point to the northeast in ever steeper angles. Wall Street is a harsh mistress.
Posted by: Eric at January 30, 2008 09:20 PMSounds like the international Sbucks might be off to a rough start, kind of like Euro Disney. Europeans are already the "coffee authority" (or at least they think they are). This is just like putting make-believe castles in the land of real castles. It won't work. But you're right...Wall Street doesn't like plateaus and there's already a *$ on every corner of America. What's a company to do?
P.S. I hope you don't spend all your days listening to earnings reports. ;-)
Posted by: gwynne at January 31, 2008 12:52 AMP.S. I hope you don't spend all your days listening to earnings reports.
This was the first time I've listened to an earnings call webcast. It came about via an unusual combination of a mundane task not requiring my full attention and an email alert about the start of the webcast. And while it wasn't exactly riveting, there were enough interesting moments to make it worth listening to while editing some PDFs.
Posted by: Eric at January 31, 2008 08:15 AMThanks for the clarification. Yes, Wall Street is a harsh mistress. But I still think that if Starbucks does what Schultz says he wants the company to do, those profit arrows will be heading from Texas toward Pennsylvania, and maybe even New England fairly soon.
Posted by: Jim at January 31, 2008 06:06 PMFunny, just last Saturday as we passed the second of two Starbucks currently under construction near our home my wife remarked that she thought they were overextending themselves.
Forget Wall Street analysts and that crazy guy on CNBC, I'm going to start getting my stock tips from the lovely Mrs. Smith.
Posted by: John Peter Smith at January 31, 2008 07:32 PMAbout the publisher
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For a second there, I thought "net stores" meant Starbucks had figured out how to pipe coffee over ethernet.
Sheesh. I'd forsake Caribou for that.
Posted by: Brian at January 30, 2008 08:01 PM