Sometimes it's just simple. It doesn't take analysts, proformas, or Cramer. Sometimes you just gotta take a look at the grocery story shelf. Such, I believe, is the case with Starbucks and it's troubled present and future.
When Starbucks went white-hot I thought to myself, "Wow, they've monopolized the last legal addiction." People in my office were making Starbucks runs twice a day, throwing $3-5 at the Seattle company each time. It became an icon in our office and phrases like "I need my Starbucks" were used in a variety of instances. Bulldog bosses who wouldn't let us turn on radios near our desks let people leave to get a Starbucks coffee ... as long as they got theirs.
I had never been much of a coffee drinker but when the Starbucks craze started I was in, finding that the sweetened coffees that they served were a whole lot different from that black motor oil my dad made when I was a kid. (He still prefers it to the modern stuff by the way). It was sweeter and closer to a hot chocolate, a dessert almost.
It didn't take long for me to realize that my burgeoning, two macchiato a day habit was running around $300 a month. And then I realized that Starbucks didn't have an experience that I wanted to be a part of as CEO Howard Schultz seems to believe. It didn't even have a special recipe on coffee that I had to have. It just franchised sweet coffee. That's what I like.
So, I looked at that free pot of coffee down the hall in that little spot in the kitchen and I went to the store and bought a sweet creamer. This was 2002 and there were a couple choices next to the usual creamers offered next to the milk. I mixed it into that motor oil and voila, sweet drinkable coffee for pennies. Better yet, I didn't have to go anywhere to get it or have a kid with a nose ring look down his nose ring when I asked for fat free milk.
Today, the creamer selection has swelled from a couple varieties to around 50 different sku's. My wife and I never go to Starbucks unless it's an impulse buy on the road yet we always have 2-3 different sweet creamers on the shelf. Think it's the economy hurting Starbucks? Maybe. Think it's the fact that guys like me can make something almost as good at home? Absolutely.
Your grocery store shelf proves that.
It's not that it has been
It's not that it has been overrated no one has ever made coffee the way they have marketing branding etc. I still dont see why people are paying $5 for a cup of coffee which is mostly water and a cup which costs pennies. I feel bad for the people who have to go daily and get their latte or whatever and pay that much they should be going to some drug rehab programs to get help and stop spending so much. You can get a great cup of coffee for $1 just look around and try them at all the stores you go to until you find one you like.
Starbucks Myths
Myth 1: Starbucks overroasts their coffee. They roast to what is called in the industry the "second pop". It's a longer period of time and refers to the bean popping as moisture is released. This brings out the oils and flavor of the bean (and takes out the moisture) while many inferior roasters like Gloria Jeans, Folgers and the like only do the first pop. Why don't these others do it? The bean has more moisture so it weighs more and therefore more profit (not taste). Produces a more mellow/less flavorful bean. Peet's roasts their coffee the same as Starbucks, one of the early owners of Peet's was a roastmaster for Starbucks in the early days. Different beans have different roasts, you might like a more mild roast like Breakfast Blend or the new Pike Place Roast. Taste Peet's and Starbucks side by side (with a similar roasted coffee like a House Blend) and you will taste very little difference.
Starbucks doesn't roast this way for shelf life. They were one of the first to use a flavorlock valve (one-way valve) in their bags. This allows the fresh roasted coffee to be packed right away while allowing warm, moist air to escape but not allow air in. Air kills the flavor of coffee beans. Any coffee packed in a can, or bag that isn't air tight and doesn't have a one-way valve is "dead" coffee. That means it was packed after cooling and drying in the air. Some companies like Folgers have sprayed in flavor/scent so it smells like coffee when you open the can but in reality the beans don't have any scent at that point. Try squeezing a Starbucks coffee bag and smell at the valve (centered on the logo), that's what real coffee smells like.
Myth 2: McDonalds is Starbucks' competition. Different demographic, different product offerings, different quality and often, different locations. When the loyalists go to McDonald's then I'll buy this argument, until then I don't buy it. Breakfast actually helped Starbucks sales but the loyalists where upset that the smell was taking over the coffee experience. They've since ratcheted down breakfast to fewer and different (less aromatic) offerings like oatmeal.
Myth 3: Too many stores are killing the brand. I would argue that stores too close to existing stores and stores in poorly thought out locations are what hurt Sbux bottom line. Sbux success has always been convenient quality. Get it when and where you want it. I agree that they oversaturated many locations which gives the impression they are everywhere and that is never good for a brand long-term. You would be surprised that there are states with less than a 100 stores, I believe North and South Dakota didn't have stores a few years ago. Overseas, there are many large cities without stores or very few at most.
Creamer concept:
As far as creamers go, the original poster was never a quality coffee fan. Sure you can mask any coffee with sugar. Starbucks has made a good living with the sweet stuff but an espresso drink with good foam isn't the same as some crappy office coffee with creamer. Your an infrequent consumer and not Starbucks core audience. The core loyalists are still going to Sbux for the same reason they always went, custom/made to order espresso drinks. Try making the same double shot, half-caf, 2 percent with lots of foam drink at your office or home.
The irony here is that Starbucks did offer a creamer in grocery for a very short time and may again in the future. Trying to get your dollar anyway they can.
The economy is the main reason Starbucks has slowed down, many economist actually look at Starbucks as an indicator of how the economy is doing. The amount of foot traffic Starbucks has as well as their middle class demographic makes them a "canary in the coal mine" for the economy.
Opinion as fact
Apparently, that's the new world we live in...everyone likes to state their opinion as a priori truth, ie, Starbucks IS overated. Well, in a way I guess one's opinion is fact, at least to them. But we shouldn't, especially as investors, take other opinions to heart...at least I don't think so. Starbucks still has loyal fans, despite the mistakes they've made over the past couple of years...more loyal fans will arise (as they always do even for the worst of products (or rock bands...or political paradigms) and starbucks is far from being the worst regardless of what anyone with that opinion thinks...in my opinion). They've done the right thing with the store closings to correct a huge mistake in over expansion...they continue to grow globally. It will take a few years but it is my humble opinion that they will be looking good 5 years from now as a bigger company globally, even with the store closures stateside.
13Bravo
Starbucks
When you want to get from point A to point B you have choices to help you do it. You can buy a Chevy Malibu and and accomplish the minimum goal, or you can buy a BMW and accomplish it with style and grace. BMW created the sport sedan and Starbucks created the broader market for custom crafted quality coffee in the US. Ever since, all the car makers have been trying to emulate BMW's product and the coffee purveyors have been trying to emulate Starbucks. Granted, there are several markets where quality coffee existed before Starbucks (New Orleans, Miami, San Francisco, DC, etc.), but Starbucks led the way in the broader markets.
Starbucks only sources Arabica beans which are grown at higher altitudes, requiring little or no fertilizers or pesticides. Most other coffees are Robusta beans, grown at lower altitudes with lots of chemicals. Have you noticed some of the grocery store brands are now advertising their switch to Arabica beans? Maybe they can catch up.
Bottom line....I hope we always have the choice between Chevys and BMWs.
Starbucks Was Always Overated
There's a reason why some companies 'should be global' and others 'National' or even 'Regional'.
How many times have people said, "Well down south we have..." or "In the Midwest we have..." and they can be talking about anything from restaurants to motels to auto parts stores.
For coffee in my part of the world, it has always been Peet's. Now true, Peet's does have a few outposts here and there on the Wesy Coast, but in the Bay Area, when you say coffee, you go to Peet's.
I believe it's one reason for Starbucks recently closing 600 stores. When Starbucks wanted to flex their global muscle and took on McDonalds for 'breakfast' food items (and McDonalds quietly brought out there iced coffees), Starbucks lost.
Starbucks beans were always way over roasted anyway to provide a longer shelf life.
Make it at home! And if you can't, find a Peet's!
ExHippy