It’s official: Starbucks Corporation (NASDAQ:SBUX) is a PR machine.
For itself, naturally.
The coffee giant is launching a new flavor on its menu: Birthday Cake Frappuccino. The occasion? SBUX is celebrating the 20th birthday of its own Frappuccino. And the pink drink will only be around for a limited time, from March 26-30.
This Birthday Cake Frappuccino won’t be around long enough to make a significant dent in the bottom line, but it does serve as the latest example of Starbucks’ brilliance in public relations. Hardly a week goes by without some internally created news event getting free love from the media. (And yes, I fully realize the irony of bemoaning the self-generated SBUX buzz while giving the company more ink.)
But while the incessant stream of essentially mindless fodder surrounding Starbucks makes me physically ill, I’ve got to admit it: This gorilla marketing tactic can do nothing but good things for SBUX stock.
A Cheap Way to Advertise
SBUX shares — up 28% in the last year and more than 280% in the last five years — aren’t exactly hurting for a lift. But showy launches of new, limited-time offerings like the Birthday Cake Frappuccino aren’t going to drive up SBUX in and of themselves anyhow.
What Starbucks is doing, ever so subtly, is making sure its brand stays bouncing around in the consumer’s consciousness.
And it’s darn good at doing that.
These last two weeks serve as a perfect case study. On March 17, SBUX launched its “Race Together” campaign, an initiative in which its baristas would write the words “Race Together” on the cups of coffee they made in an effort to spark conversations about race relations. Read: free press.
Less than a week later, SBUX abruptly announced it would stop writing “Race Together” on its coffees. Yet again, this made the news.
As a member of the media, it makes me nauseous. As an investor, it makes me bullish.
Starbucks is preposterously lean in the ad department. In fiscal 2014, SBUX revenue came in at $16.45 billion, a 10% year-over-year increase. It spent $199 million on advertising, or 3% less than it did the previous year. One of its closest competitors, Dunkin Brands Group Inc (NASDAQ:DNKN), had a $379 million ad budget in 2014. And what did all those funds do? They went to work fueling sub-5% revenue growth that saw total sales rise to about $750 million.
In other words, SBUX used 1.2% of its revenues to drive 10% growth, while DNKN allocated 50% of its revenues to drive 4.9% growth. Semantically, I should note that Dunkin isn’t expensing half its sales on ads — its franchisees raise the advertising funds each year, so the scratch doesn’t come out of Dunkin’s pocket. But still, it’s clear DNKN isn’t getting nearly the bang for its buck that Starbucks is.
Bottom Line
Returning to the Birthday Cake Frappuccino, I will concede that it’s possible the drink could become a hit and help to drive sales. Lord knows its Pumpkin Spice Latte has done well: Through 2013, SBUX had sold more than 200 million PSLs in 10 years, and now analysts regularly expect a seasonal sales bump in the fiscal-fourth quarter from the drink.
But again, more than anything this Birthday Cake Frappuccino nonsense is a marketing ploy. Frankly, I hate it. But as an investor, its hard not to respect it.
As of this writing, John Divine did not hold a position in any of the aforementioned securities and was considered by no one to be a coffee connoisseur. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
