Starbucks Corporation (SBUX): What’s a Drink Without a Nosh?

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These are good days for Starbucks Corporation (SBUX) and its shareholders.

Starbucks Corporation (SBUX): What’s a Drink Without a Nosh?

The company has been growing sales at 15% per year, margins are rising, and a price increase recently went through without trouble. The company continues to expand its international footprint and its operating window, thanks to the introduction of beer and wine at select locations.

But there remains a dark cloud on its horizon, which may be why the stock has gone pretty much nowhere over the last year, down roughly 4%.

That cloud? What’s a drink without a nosh?

No Room Behind the Counter

A Starbucks store is pretty small, usually about 2,000 square feet. Most of that space is devoted to table and chairs, where customers lounge over drinks and WiFi. The barista station has just enough room for coffee-making supplies and the requisite machines, and the baristas are trained only in making drinks and small talk.

If you’re hungry, there’s some limp pastry from regional bakers, which vary from place to place. Deliveries are made late at night, and the workers are trained only to put that pastry on a piece of wax paper or a plate.

Yeast Takes Room to Grow

Back in 2013, Starbucks bought a string of bakeries called La Boulange, closing them in 2015. Last month it tried again, buying an Italian baker called La Princi, which will serve a new line of larger “Roastery” stores in big cities.

CEO Howard Schultz, in short, knows he has a problem, and it’s a tough nut to crack. Better pastries might solve his morning problems — a lot of people are willing to take the coffee at Panera Bread Co. (NASDAQ:PNRA) for a better cinnamon bun. But each Panera unit is 4,600 square feet. It’s impractical for a mass roll-out for SBUX.

Even if Starbucks figures out breakfast, meanwhile, there’s the evening to consider. A glass of wine without a small plate of something may start an evening, but it won’t make an evening, the way a nice latte or two can make an afternoon. Even cheese, olives, nuts and pretzels have to be stored, and they can’t be entirely pre-packaged if they’re to be inviting. At minimum, they have to be plated, and that means re-training staff.

This is becoming a growth ceiling for Starbucks, and reminds me of the problem they have had incorporating tea into the program. Starbucks bought Tazo in 1999, then Teavana in 2012, and neither has been heard much from since.

Tazo has a presence in grocery stores, and they keep some boxes of its bags at Starbucks if you really must have tea. Starbucks has tried some tea drinks, but none has been a hit.

This is why Starbucks stock is going nowhere. Building stores is one thing. Building businesses inside existing stores is something else. It’s a problem Howard Schultz has yet to figure out, and if he ever does watch out.

Dana Blankenhorn http://www.danablankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time https://www.amazon.com/Reluctant-Detective-Travels-Time-ebook/dp/B01FECREKW/ref=nosimacluecom. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As this was written he owned shares in SBUX.

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Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2016/08/sbux-whats-drink-without-nosh/.

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