The novel coronavirus is said to be creating a restaurant apocalypse in which only the strong survive. Social distancing measures coupled with a weaker U.S. consumer means spending on going out to eat is likely to take a hit throughout the rest of the year. But coffee chain Starbucks (NASDAQ:SBUX) looks relatively well prepared to thrive in this new environment. SBUX stock is down more than 20% from where it was trading in February, but long-term investors can use this dip as a buying opportunity.
Unlike many of its restaurant peers, Starbucks has become a staple for many Americans. So much so, that anecdotal advice shows people are willing to wait in massive drive-through lines just to get their caffeine fix. That kind of customer loyalty can be attributed to the firm’s ability to adapt to changing environments, and that’s precisely what you can expect the firm to do in the wake of the novel coronavirus pandemic.
Starbucks Has the Benefit of Experience
One of the reasons investors can trust in Starbucks’ ability to weather this storm is the fact that it has done it before. A global pandemic is something none of us predicted, as such, most companies are blindly feeling their way through it. To some extent, so is Starbucks, but the firm’s presence in China should offer some reassurance.
In China, where the coronavirus outbreak started, lockdown restrictions have been eased and consumers are starting to return (albeit slowly). During its first quarter earnings call, the firm was able to offer investors some guidance based on what’s happened so far in China. Starbucks stores in China saw same-store sales fall by 50%, but as the nation’s economic recovery gains traction, it’s expecting to see comps decline just 0-10% in Q4.
While that’s still nothing to write home about, it suggests that the coffee chain is seeing demand return. That’s good news when you consider that UBS found that China’s consumers have been slow to start spending on eating out.
Recovery in the U.S.
Meanwhile, Starbucks declined to offer any guidance regarding its recovery in the U.S., which is fair enough considering many states still have shelter-in-place orders in effect. However, the firm has been able to continue offering drive-through service at many of its stores, and management is expecting 90% of its stores to be open to the public by June.
There’s no question that SBUX stock will feel the pain of the Covid-19 pandemic over the next few months. Q2 is likely to offer more disappointment as the U.S. slowly reopens its doors. But you can bet that Starbucks will be one of the first chain restaurants to recover once consumers head out again.
That’s because the value proposition for Starbucks actually improves when discretionary spending falls. High levels of unemployment and cost-cutting measures are likely to stick around in the medium-term, even if the pandemic is completely eradicated. That means we can expect consumer spending to remain depressed … at least through the rest of the year.
But spending on Starbucks will likely remain strong as it offers people an affordable luxury. When lockdowns are lifted and people can get out and about again, they may be hesitant to spend much on meals out — but $5 on a latte is a reasonable way to go out and meet with friends and family.
Starbucks Is Well Positioned for a New World
Plus, Starbucks has the benefit of exceptional customer loyalty thanks to its mobile app. The firm has one of the most successful apps of any restaurant chain and its rewards program has been successful in driving new traffic.
Not only that, but before Covid-19 hit, Starbucks had been building out its mobile ordering capabilities. People were able to order and pay via the Starbucks app and pick up their drink in-store. That’s going to be a helpful system to have in place with new social distancing rules limiting the number of customers that can enter a location at one time. Many restaurants will have to come up with new systems to ensure they can protect their customers and staff from Covid-19. That will require investment and training, but Starbucks already has a leg-up with its mobile ordering platform.
The Bottom Line on SBUX Stock
No one will escape the pain caused by the pandemic — not even a strong company like Starbucks. However, long-term investors should be focused on who will come out of this ordeal unscathed and Starbucks looks like the best candidate. SBUX stock will recover quickly once the U.S. economy restarts, making this dip an excellent time to start taking a position.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
