Some Questions for Starbucks

We listened into the Starbucks (SBUX) earnings call this week. The company is working to reverse current trends, trying to make their 16,000 world wide stores more customer and economic times oriented.

We were intrigued about a couple of things, that stood out to us:

• As noted in the earnings call, why is the average check per transaction still lower (5%), despite selling more food items per transaction? Is there some way to backfill?
• While SBUX value surveys rankings were reported to be strong, what about lapsed users?
• Does Starbucks have a “value menu” band somewhere in its future menu planning?

click to enlarge

And, what is the optimal store penetration rate, and how does that compare to the current number of stores? I know we’ve been told many times that Starbucks is not a restaurant, but being a status, lifestyle or a gathering place isn’t enough anymore. Depending on the research, more revolutionary menu changes might be needed.

Disclosure: Pacific management Consulting Group is a research oriented management consultancy that has no stock positions.

Comments

[SBUX Watcher:]

Check may be down because they're selling less bagged coffee. Bagged coffee is available in grocery stores ... why go through the hassle of standing in line at a Starbucks store to buy a pound of beans. Also, consider other "dumb move," selling bagged Seattle's Best in grocery stores next to (higher priced) Starbucks ... doesn't make sense ... I'll buy the cheaper Seattle's Best. Check average could be going down due to even smaller average party size ... couples/groups no longer going or going less often. Other contributor to lower check is cheaper Pike Place drip coffee.

Feb 02 12:55 PM

[gapboy30:]

Check average might be down due to the Rewards program for Starbucks Card. It allows customers to get free syrups and milk substitutions that used to cost 30 or 40 cents. My vanilla soy latte is now 70 cents less than it used to be. I appreciate the value and it keeps me coming in everyday.

Feb 02 11:05 PM

[the owl:]

What I really don't understand is how the swill called coffee that is sold by Dunkin Donuts is supposed to be the hot ticket. Can anyone make sense of this

Feb 03 11:16 AM

[sundrenched:]

Gimme a break. Last week I had a cup of Starbucks brew that was at the temperature of bathwater for a baby. My guess is that they turned the temperature lower so they can keep it heated even longer. At Dunkin Donuts, they throw brewed coffee out after 18 minutes, as they should. Single most important thing with a good cup of coffee is that it's fresh -- after that you get bean quality. Sorry, just have to vent because it annoys the hell out of me how Howard Schultz belittles the competition and boast about his product, which very often isn't even up to scratch. I was a Starbucks shareholder for a while and am so glad I sold out before getting clobbered.

On Feb 03 11:16 AM the owl wrote:

> What I really don't understand is how the swill called coffee that
> is sold by Dunkin Donuts is supposed to be the hot ticket. Can anyone
> make sense of this

Feb 07 04:06 AM