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Starbucks might be about to surprise Wall Street


sakura

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For years Starbucks Corporation’s (SBUX) shares have mirrored their phenomenal success, but recently the coffee giant has come under attack from the likes of McDonalds and other fast food giants as well as indie coffee shops which has been reflected in the value of their share price.

After reaching a peak price of $64.87 in June, Starbucks shares are down 1.41% overall this year. However, Starbucks has expanded into new territories and brought greater convenience to its clients with the use of innovation which has prompted some analysts to predict that the coffee-making giant will surprise Wall Street when it releases its fourth quarter earnings on November 2.

Starbucks experienced tremendous growth between 2011 and 2016 with sales growth above 5%. It all changed in the third quarter of 2016 when sales growth was just 4% while for the first time transaction growth was flat. For the next quarter, sales growth remained below 5% while transaction growth was negative (-1%).

Starbucks’ growth has been affected by competition from indie coffee shops and traditional fast food giants who have widened their menus to capture some of the coffee drinking market.

Indie coffee shops are opening everywhere and have taken away the trend-focused millennials market, while the price-focused crowd is now going to McDonalds for their coffee.

Changing consumer preferences have had a big influence on Starbuck’s recent performance. The competition has expanded their menu options and physical store locations to better reach a wider customer base which has drawn consumers away from Starbucks and resulted in the slow down of sales growth.

As a result, Starbucks has embarked on a three-pronged response to the threats.

The first is Starbucks’ mobile ordering and pay app which boosted sales last quarter. Mobile payments now account for 30% of Starbucks transactions in US stores up from 29% in Q2 and 27% in Q1.

As Starbucks is concerned that it could lose its edge to independent coffee shops it has invested in opening high-end roasteries to maintain its upscale reputation as the second part of its response to the threat on sales growth. Starbucks intends to open 20 to 30 Roasteries, which are tourist-friendly mega-locations roasting coffee in-house and serving expensive drinks.

 

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