Tag: sbux

Some initial thoughts on early reports on Starbucks’ (SBUX) “initiatives”.

In an interview before the meeting, Starbucks executives said they want to bring back some of the romance and theater that’s been missing from stores since the company switched to using sealed grounds years ago. Starbucks will quit using flavor-locked bags of pre-ground coffee next month and get back to grinding beans in most of its U.S. stores.

Starbucks’ senior vice president of global strategy, Michelle Gass says she expects the change will improve sales that have gone to rivals McDonalds (MCD) and Dunkin’ Donuts.

One quote struck me, “”We have an economy in a tailspin . . . and a company whose performance has not met your expectations or mine,” Howard Schultz. Earth to Howard, we have not even had one quarter of negative GDP, this not only does not qualify as a tailspin, it barely qualifies as a hiccup. This is alarming as Schultz is seeming to push the chains poor results, which have been deteriorating for longer than the economy on outside factors.

Has he seen McDonald’s results?

Rather than a return to what they do best, Starbucks seems intent, at least after initial reports to be running around in more directions. After begging them to get rid of the clutter in the stores, a report is out that they sell approximately 2 Cd’s per day per location. What is the point for forging ahead with this? The resource expenditure in terms of money, human time and stores space is tremendous for essentially zero return.

Here are the initiatives:
* A proprietary and revolutionary in-store Clover® brewing system that delivers the best cup of brewed coffee available anywhere;
* A complete reinvention of brewed coffee in-store, that will be brought to life by baristas across the U.S., who will scoop and grind a new unique coffee blend, connecting customers to the early days of Starbucks;
* The introduction of a new state-of-the-art espresso system that provides the perfect shot every time and helps facilitate the critical connection between barista and customer;
* The first phase of a Starbucks Card Rewards program, rewarding registered cardholders and providing unique new benefits when using their cards in Starbucks stores;
* The launch of MyStarbucksIdea.com, Starbucks first online community, that takes the Starbucks Experience outside the store and enables customers to play a role in shaping the company’s future; and,
* An expanded relationship with Conservation International

A social networking site? Why? An expanded relationship with Conservation International? Nice, but, who really cares? Stocking your shelves with 100% organic products would have made a much larger difference with countless more folks. It seems as though Schultz is driving the company to be almost a social experiment and is ignoring his business’s realities. When he started, he had almost no competition. Now the competition is fierce. A social networking site will be meaningless long term.

The initiatives set to “transform” the company simply fall flat and will perpetuate the current slide. As a casual Starbucks user, only one of the six actually will have any affect on me and any purchasing decision and even it is negligible. A new espresso machine and coffee brewer? So what. Are you telling me what is in there now is no good? The one that will actually matter? A rewards card, not a bad idea.

Schultz & Co. still have not addressed the chief complaints people have, Convenience, Price and Service. Until they do, do not expect any dramatic improvement.

Disclosure (“none” means no position):None

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In a press release, Starbucks (SBUX) announced it will disclose “transformational initiatives” at it annual meeting next Wednesday. Here is my two cents.

My first though when I read this was: Is it necessary? Hadn’t they done just fine up until this point? Didn’t they get themselves in to trouble in all actuality when they tried to “transform” away from what they did best?

What should they announce then? Here are some directional ideas.

1- If you are going to claim to be “upscale” or “premium”, then you have to act like it. The only thing upscale about the Starbucks experience in many locations is the price. Get rid of all the junk for sale that makes me feel claustrophobic when I try to maneuver myself to the counter. Expand locations to give us more seating. If I have to wait to get my drink made, please ask me to go sit down and then bring it to me. Also, I should not have to clean off the table when I sit down at it.

These are not real big things, they are basics and McDonalds (MCD) currently does them. Yet location after location ignores these. You are not doing me a favor letting me drink coffee there.

2- Shrink the menu. Do fewer things very well rather than a bunch just ok. There is a big variation in the same drink from location to location. That may have changed after the recent “training” but with new baristas being hired everyday, the unwieldy menu can only lead to mistakes and more unhappy customers.

3- Organic: Everything sold at the stores should be organic. The population is drifting that way in its food choices and Starbucks ought to be a leader here. This also goes with the “acting upscale” theme.

4- Be Nice: If I order a “large” do not correct me and say “it is called a vente”. Just smile and give me a large.

5- Kids. Your stores could not be more kid unfriendly if you tried. Everything for sale is waist height which means any kid under 6 will look at it, touch it and possible break or try to eat it. I am not saying put a jungle gym in, what I am saying is that less people will avoid the locations who have children if they do not fear what they will get into taking the kids in.

6- Price: You are at the top.

None of these are a magic bullet but when taken together and enacted, they will begin to change some of the negative sentiment that has built up out there towards the chain. Many of these things were all done years ago but Starbucks drifted away from them in an effort to maximize dollar per square foot. In all reality, by drifting from their core, they alienated many people.

Disclosure (“none” means no position):Long MCD. none

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Remember the movie “Groundhog Day”? Bill Murray keeps waking up and it is the same day over and over? This has become what reading McDonalds’ (MCD) monthly sales figure has become.

For February:
* Same-store sales in the U.S. rose 8.3% during the month, led by breakfast and coffee offerings.
* European same-store sales grew by an impressive 15.4% on strong results in the U.K., France, Germany and Russia.
* Asia Pacific region, Middle East and Africa rose 10.9% for the month, mostly on strength in Australia, China and Japan.
* Systemwide sales, which include restaurants owned by franchisees and affiliates operating under joint-venture agreements rose 13.2% in February.

It is all about the two C’s. Coffee and convenience. I have been saying the same thing since Feb. of last year and nothing that has happened since then could lead anyone to think that things are due to change anytime soon. Id McDonald’s going to become less convenient anytime soon? No. What are they going to do? Expand the coffee offerings. That can only lead to more interested people choosing to get their fix from Ronald & Crew at convenient locations at value prices.

Compare this to Starbucks (SBUX) that has maintained the coffee, increased prices and diminished the convenience factor with the addition of sandwiches and micro locations that force you to wait in line outside. Any wonder the stock has cratered in the past year, down well over 50% since my first post on the subject?

Disclosure (“none” means no position):Long MCD, none

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