Another quarter, another blockbuster earnings report for Starbucks (SBUX). Thanks to continuing growth in the US and Japan, the company did beat earnings and revenue estimates, sending its shares soaring in Friday's trade. But I wouldn't buy into this rally, as Starbucks' growth is approaching its demographic and geographic limits.
Starbucks has been riding the baby boomer trend in the 1990s that created the need for a "third place," an "affordable luxury" where people could share and enjoy a cup of coffee with friends and colleagues, away from work and home. The chain has inserted itself into the American urban landscape more quickly and craftily than any retail company in history, and has forever changed the way Western companies market themselves to consumers.
In recent years, however, Starbucks attracts bigger and bigger crowds, from all strands of life, including families with young children. This means that the company turns from a "third place" for the young and middle-aged professional to everyone's place. One factor that has contributed to this transformation is the broadening of the menu that includes more breakfast and light lunch items. Another factor is the weak economy that helps Starbucks attract customers from more expensive places.
That's certainly a sign that the company has approached its demographic limits.
Starbucks' weak European sales, on the other hand, may be an indication that the company has been approaching its geographic limits - Europe is where the Starbucks concept originated.
Qtrly Revenue Growth (yoy)
Qtrly Earnings Growth (yoy)
Return On Assets (ROA)
Dunkin' Brands Group (DNKN)
Panera Bread (PNRA)
Starbucks SWOT Analysis
Well- recognized brand name; still run by the company founder.
Lack of dinner menu;
Product portfolio sensitive to economic conditions; High degree of market saturation
Expansion to the tea market with the acquisition of Teavana; continuing expansion to China.
Competition from McDonald's McCafe; Dunkin Brands; and Panera Bread
The bottom line: Starbucks' best days may be behind. That's why I will avoid the stock, and look for growth in companies that have plenty of room to grow like Panera Bread and Dunkin Brands..