Boasting an extensive global presence, Starbucks (NASDAQ: SBUX) stands as a ubiquitous force in the business world. Established in 1971, the company has risen to prominence as the undisputed leader in the retail coffee industry.
Over the years, Starbucks shares have been a remarkable success story, delivering an impressive total return of 17,000% since 1994. However, as of the current writing, the stock sits 26% below its peak price.
Before hastily considering the addition of this dominant enterprise to your portfolio, it’s essential to familiarize yourself with these three key facts about the company.
1. Its growth plans
Starbucks has displayed its colossal scale by generating an impressive $34.7 billion in revenue over the past 12 months. The company’s global footprint is equally staggering, with 38,587 locations spread across 80 countries.
While these figures might suggest a saturation of growth opportunities, the reality is quite the opposite. Analyst consensus estimates project a compound annual revenue growth rate of 9.1% over the next three fiscal years, fueled in part by the strategic expansion of new locations.
Starbucks’ management envisions a future where the U.S. boasts 20,000 stores, up from the current count of 16,466. Meanwhile, in China, identified as a significant growth frontier, the plan involves ramping up the number of stores to 9,000 by the end of fiscal 2025. This represents a 29% expansion in less than two years from the existing 6,975 stores in the country.
A pivotal aspect of this growth strategy involves intensifying presence in established markets. This entails a heightened focus on introducing drive-thru or delivery-only setups, aiming to further tap into the existing market potential.
2. The economic moat
Sustaining long-term success, as exemplified by Starbucks, necessitates the presence of an economic moat—a concept popularized by Warren Buffett. An economic moat implies that a company possesses a distinct advantage that creates formidable barriers for competitors.
At the heart of Starbucks’ enduring success lies its most valuable asset—the brand. While the coffee and food offerings may be considered commoditized products, the brand serves as a powerful differentiator, enabling the company to command premium prices. This strategic positioning is reflected in Starbucks’ impressive gross margin, averaging 28.3% over the past decade.
Beyond the invaluable brand, Starbucks leverages scale advantages. Its size provides significant buying power and negotiating leverage, securing more favorable pricing on essential commodities compared to smaller competitors. Additionally, any technological investments made by the company stand to benefit a much larger store and customer base, further reinforcing its competitive position.
3. A digital foundation
In the ever-evolving landscape of retail, meeting customers where they are is paramount. This involves a strategic emphasis on fortifying digital capabilities to facilitate ordering in the most convenient ways for consumers. Starbucks, with its highly successful rewards program launched in late 2009, exemplifies this approach, boasting 34.3 million 90-day active members domestically.
As the world embraces increasing digitization, the data gleaned from these customers furnishes Starbucks with a significant advantage. This wealth of information serves as a valuable resource for guiding marketing initiatives and product development, aligning with the company’s mission to stay attuned to customer preferences.
The rewards program not only drives customer loyalty but also promotes repeat purchases—a coveted achievement for any consumer-facing enterprise. In the U.S., sales at company-owned locations attributed to rewards members stand at an impressive 59%.
Highlighting the impact of this strategy, Starbucks CEO Laxman Narasimhan noted on the 2024 first-quarter earnings call, “Our growing Starbucks Rewards members are visiting our stores more frequently and increasing their spend each time that they come.”
Ultimately, the goal is to enhance accessibility and convenience for customers ordering Starbucks’ products. This digital foundation emerges as a pivotal asset, poised to continue steering the financial success of this consumer discretionary stock well into the future.
