To: Howard Schultz, President and Chief Executive Officer, Starbucks (NASDAQ:SBUX)
From: Marc Bastow, Grande Wet Cappuccino Lover
RE: Strategy Update
After spending a glorious pre-Christmas weekend in New York City, I can comfortably and enthusiastically report on the following two issues, one of which you might not care about:
- The New York Knicks are finally a good team, and
- Starbucks stores are absolutely killing it in NYC.
Since the latter is of more use to both you and your shareholders, let’s talk about that.
Of the dozens of Starbucks outlets I walked by and entered during the weekend, every last one ranged between “crowded” and “mobbed” from sunrise to sunset. Several locations were stripped bare of mugs and prepackaged hot foods by early afternoon, and while the new Verismo coffee systems weren’t flying off the shelves, they were moving.
Now I can’t vouch for each of the approximately 175 Starbucks stores in the city, but if my (totally unscientific) observations are any guide, I’m willing to believe you when you say you’ve learned your lessons since your last round of poorly executed expansion.
The stores are located in easy-to-find spots on prime streets and corners, and despite the overwhelming numbers of people, everything appeared to be running smoothly across the counters. Nice.
You’ve also returned to a feel of both Starbucks-as-a-destination for meetings, as well as a cool place to hang out. Squatters with laptops abound — and more important, they’re actually drinking or eating something.
The traffic at the Dunkin’ Donuts (NASDAQ:DNKN) stores I saw isn’t anywhere near what you guys are bringing in. Not even in Penn Station! Even the small coffee shops — some of which are literally across the street and sell a cappuccino at half the price — don’t seem to compete.
Considering how well things have already gone in 2012 — a market-beating 20% year-to-date return, to be specific — it almost seems crazy to expect more out of you. Then again, with SBUX trading at roughly 30 times earnings … maybe it’s not so crazy. Maybe the big American expansion can rocket you even higher.
Just don’t let history repeat itself.
P.S.: Good luck in Asia.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.