Why Starbucks is Bigger Than Just Coffee

I had the opportunity yesterday to visit Starbucks (SBUX) for the first time all year long. I’ll document my first legitimate investor trip to the local downtown Starbucks, and explain why Starbucks is bigger than just coffee.

Starbucks on a Corner

Like many Starbucks locations in the city, Starbucks has a proclivity for opening coffee shops on street corners. I noticed the dark green “Starbucks Coffee” roof from 2 blocks away, and of course the iconic symbol reminded me of similar well branded logos like McDonald’s (MCD) golden arches. The traffic outside of Starbucks was pretty heavy around 8:30 am, around 5 customers entered the shop while I stepped inside.

In contrast to the busy street cards and bustling pedestrians, Starbucks was calm and cool inside. Cleanliness could’ve improved since I noticed a few straws and napkins thrown carelessly on the floor. Other than a few out of place napkins, straws, and abandoned tables, everything appeared well in order.

Building a Strong Community

As I stood in line, I noticed other customers reading, typing, and chatting amongst friends. Starbucks maintains such a strong sense of community; it’s really remarkable to witness individuals relax and calm down on a normally hectic work morning.

The waiting line stretched about half-way to the door, and even as I waited, the line neither shrunk nor grew. The flow of customers in and out of the shop remained constant, which was nice because Starbucks wasn’t too crowded or too empty.

Plenty of Menu Selections & Fast Service

Eventually, I ordered a vente Green tea, yet was asked, “Hot or Cold?”, “Tips or Leaves?”, and “1 or 2 teabags?” Honestly, the amount of choices at Starbucks is ridiculous. I’m used to ordering a drink, and getting exactly what I requested.

Starbucks’ menu carries so many diverse combinations of the same thing that even the pickiest consumer would find something to order. Is it possible to carry too many selections that confuse customers?

After paying for the green tea, I walked over to the wait area in anticipation of my drink. There was already a vente drink sitting on the countertop, but I didn’t think it was mine. A minute later, I found out my tea was ready before I even walked over to the pick-up area.

Now, I know why the flux of customers remains constant. Starbucks baristas know how to churn those orders like clockwork. Hattip to you Starbucks baristas out there!

One of the baristas looked upset, but most of the Starbucks crew provided service with a smile. I’m not sure what the general feeling of the average Starbucks employee is, but I have never seen too many unhappy baristas. Frequent Starbucks customers, is this accurate?

Starbucks is not Expensive! It’s cheap if you’re savvy

Do not believe the critics that claim Starbucks is too expensive. It is cheap if you know where to look. Instead of buying from the shop, buy Starbucks at your local Giant, Safeway, etc. You can pick up a 12 oz Starbucks coffee house blend for $12. I see Starbucks coffee bags in the office kitchen all the time. You don’t have to spend $6 a day to enjoy Starbucks coffee.
Don’t Think Starbucks Coffee - Think Starbucks Corporation

Remember when I said, “Starbucks offers a diverse combination of menu selections?” Well, Starbucks maintains stake in the commercial supermarket business, which makes up 14.8% of net revenues.

Starbucks Java Chip Ice Cream

Starbucks sells pre-bagged Starbucks coffee for home, Starbucks ice cream, pre-bottled Starbucks beverages, and for the grown and sexy Starbucks liqueuers! That’s an impressive lineup, but what’s more important is that Starbuck’s brand extends past their traditional specialty coffee stores. Even frugal customers can still enjoy Starbucks at the supermarket for a lower cost.

When you take into account the specialty store revenues from supermarket, vendor, and non-retail merchant sales, Starbucks resembles Coca-Cola, a company that built its empire on one iconic drink, Coke, and spun off multiple products within 1 degree of separation.

In the case of Starbucks, Coffee lovers not only drink traditional coffee, but love coffee ice cream, coffee liquor, and even coffee cookies! You see where I’m going with this.

Starbucks is more than coffee; it’s become a domestic and soon to be global powerhouse in specialty retail and consumer non-cyclical goods. Earnings grow at 20%, and Starbucks plans to open 2,400 new stores at the end of FY 2007.

Real Life Example of The Starbucks Effect

When I returned from Starbucks, I sat down and enjoyed my Starbucks Green tea in front of 2 colleagues. 20 minutes later, both went to, you guessed it, Starbucks.

They told me, “they couldn’t resist the Starbucks temptation.”

The Starbucks effect is alive and well.

Full Disclosure: I own shares of SBUX.

SBUX 1-yr chart

Comments

[Greg Sherwin]

Excuse me, but did I just stumble into a Starbucks investor relations conference?

Sorry for the intrusion...