Starbucks (NASDAQ:SBUX) is opening more than 85% of its U.S. stores this week. And as millions of Americans reconnect with their coffee addiction, SBUX stock continues its slow but steady climb back.
The stock is starting to recover after being pushed down about 10% after the company reported disappointing earnings.
But that shouldn’t scare investors off. Instead, I think that SBUX stock is creating a “buy-on-the-dip” opportunity. One of the reasons I believe this is because of the company’s experience in China.
The Company Is Open For Business In China
This isn’t to disregard the fact that the company has successfully opened nearly all of its stores in China. According to CEO Kevin Johnson, the company should be able to take the lessons the country learned from reopening in China in their re-opening in the United States. In a letter published on May 4, Johnson wrote:
“The foundation of our approach comes from what we have learned in China, where more than 98% of our stores are now open and operating under revised protocols. We have adapted these protocols for the U.S. and our goal is to exceed the standards outlined by the Centers for Disease Control and Prevention for a safe experience, including heightened emphasis on cleaning and sanitizing protocols in our stores.”
But while the company has successfully navigated a re-opening in that country, that’s not the lesson I’m talking about.
Grab-and-Go Coffee Fits a Social Distancing Model
I’m referring to the lesson the company is applying from watching the emergence of Luckin Coffee (NASDAQ:LK). Luckin successfully introduced the Chinese customer to the joys of coffee. However, it did so by understanding that the Chinese consumer was less interested in the whole coffee shop experience. They simply wanted to be able to grab their coffee and go.
The concept caught on in China. And Starbucks, which already had an app, was quick to adapt. The company created a Starbucks Now store. This store’s design meets the Luckin model of digital ordering and quick service.
Starbucks is not likely to create Starbucks Now stores in the U.S. At least not now. However, since initially the stores will not let customers dine in, the company is likely to take the lessons it learned in China to enhance the mobile order and pay and delivery services.
That sentiment was echoed by Johnson who also wrote, “Nearly 20 million customers are using the Starbucks App as part of their daily routines and as those routines evolve, we’ll be finding ways to tailor the app to customers’ individual needs.”
And as Eric Fry points out in an article for InvestorPlace, only about 20% of consumers use the app to place orders in advance. However, Fry points out that it’s likely that number will increase as the re-opening begins.
It appears social distancing will be with us for quite some time. The companies that figure out how to adapt this reality into its business model will be the most successful during this period. Starbucks has done it once. It’s not hard to imagine they will do it again.
It’s Time to Buy SBUX Stock
If there’s one company that I believe will stand out as the country re-opens, it’s Starbucks. And the reason is simple. It makes a great product that has become a part of the daily routine of millions of Americans. While an old saying suggests it takes 30 or 45 days to change a habit, I bet that most Americans will still be drinking coffee after our season of sheltering.
Now they have a way to get their Starbucks fix. And with it, I expect SBUX stock to climb steadily higher. Analysts seem to agree. Even after the company’s earnings report, the company has a 12-month price target of $82, which will be a gain of over 12% from current levels.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
