Seeking Alpha
Long/short equity, contrarian, special situations, wild cards
Profile| Send Message|
( followers)  

Summary

  • I bought some barely OTM Starbucks calls yesterday.
  • #1 - Starbucks is going to push mobile payments in-store.
  • #2 - Starbucks will also be introducing alcohol to some stores later in the day.

I never follow the trends when buying, usually. I try and make my buys as dead in the face of fear as I can, and try to do my selling at the height of euphoria. Rarely do I hear a nugget of good news and simply go out and buy on it.

Yesterday, for some reason, was an exception. In hearing CEO Howard Schultz's comments regarding the coming general meeting earlier in the day, he had me at "buckle your seatbelt and sit back."

Being a fan of Starbucks for years, I never got the right entry point to invest, so I used this as an excuse to puck up an extremely small (<1% of my portfolio) position in Starbucks calls. Whatever - at least I'm in the game, maybe just for fun on this one. I thought maybe, just maybe, they'd release some news that would blow me away. And, what the company did makes me happy that I bought in when I did. And, if my calls go ITM (they're super cheap $80 April calls, already up 5%), I might just exercise. Who knows.

Although not likely to show massive gains immediately, the long-term prospects for what Starbucks rolled out yesterday are enormous. Teavana aside, the two biggest things Starbucks has going for it right now are mobile payments and the inclusion of alcohol into drinks at nights.

Seeking Alpha reported:

  • Starbucks (NASDAQ:SBUX) plans to sell alcohol in the evening at thousands of its stores.
  • The revelation came from COO Troy Alstead during an interview with Bloomberg.
  • The company says testing of the concept at select stores has gone very well.
  • Starbucks outlets located near movie theaters, restaurants and areas with an active nightlife are more likely to be tapped for alcohol sales.
  • Starbucks ( +2.1%) is still in the "early stages" of its growth and development, according to CEO Howard Schultz.
  • Mobile payments now account for 14% of all in-store transactions in the U.S. to mark a rapid-fire from the 10% it disclosed just 8 months ago. Schultz says to look for an expansion of the company's mobile payments business.
  • Tea will be a focus this year as Starbucks opens 20 new Teavana stores and dabbles with its Teavana Tea Bar concept.
  • Though the coffee chain has no plans to raise prices, it will look to improve its average customer transaction amount which is already north of $5.

So, we have a couple of great decisions all being made here at the same time. The implementation of mobile for efficiency is seemingly a no-brainer. When I'm at my local Starbucks, people are either holding their phones up to the scanner to pay for their drinks, or they're on line screwing around with their phones doing other things.

If Starbucks can capture that and use it for queuing up orders and implement the "self service" mentality for payments (the same way supermarkets and Bank of America are using), they can get things moving even quicker in their store.

The faster the people move in and out, the faster the money gets in.

And, let's get to the alcohol. Aside from just simply thinking alcohol is generally a good idea, it can definitely be a pocket niche for Starbucks. They can play off the popularity of drinks like chocolate and espresso martinis that normal restaurants seem to be implementing more of these days. Also, they can play to the warm, home type feel the stores tend to have - especially in the winter time.

No, it's not likely that Starbucks is going to be the place where you go to get tanked up on a Friday night. But, on a Sunday in the winter, while Christmas shopping with the next Monday off, there's going to be plenty of people who would love a little Baileys and Kahlua in their coffee.

By strategically positioning the stores that are going to offer these drinks next to movie theaters, malls and such, they can start trying to guarantee themselves the crowd that they want to bring in. Generally, it's likely to be your "end of the night, one and done" crowd, if I had to guess.

Yes, there is most certainly going to be major costs associated with this. You don't just go out and "decide" you want to sell alcohol - there's permitting, licensing and training that all has to get done. Plus, there's likely going to be capex necessary to upgrade the infrastructure for what the company wants to do with mobile. But Starbucks has a beautiful balance sheet and plenty of cash to do its business with, so I think costs associated with rolling these two concepts out will be nominal.

Having said that, I think this is a great idea. I think these are the two most obvious pockets for growth for the company - neither or which I would have thought of, and I'm glad I made a random bet on Starbucks yesterday. I plan on holding my calls and potentially adding to my position - as I think this is going to have long-term benefits, rather than short term. There's a chance I could add the underlying equity and more calls - $100 shouldn't be too far off for SBUX if the macro markets can hold up.

Best of luck to all investors.

Source: Starbucks' 2 New Secrets For Growth