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Why Starbucks Should Be Your Favorite Pick Among Retail Food Chains!

June 24, 2014 | About:

Riddhi Kharkia

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Starbucks (SBUX) has always offered a premium coffee experience in terms of taste and overall ambiance. The company, like its coffee, is trading at a premium, which I believe is because of the strength it has generated as a result of its continuous acquisitions and partnerships. In my last article, I highlighted the strong product portfolio of the company plus the outlook of the management to turn the coffee giant into a chain that offers wonderful customer experience.

Tea, pastries and more

In the company's last reported quarter, its same-store sales grew 6% globally. This was mainly because of the growth in ticket size due to its increased food offerings. Starbucks’ acquisition of Teavana and Evolution Fresh added a whole new line of beverages, fruit juices, fruit smoothies, salads, and signature bowls to the menu.

As U.S. citizens are becoming more health conscious, the addition of fruit juices and salads should really help the company in the long run. Furthermore, fruit refreshers and Frappuccino ice beverages will strengthen sales during the traditionally weak summers. Starbucks acquisition of Teavana will come in very handy as it helps it expand in China and India, where tea is hugely preferred over coffee.

An acquisition that Starbucks made in the last year was that of the San Francisco-based bakery La Boulange. Now, the company is all set to enter the L.A markets with the opening of the first store in the region under the La Boulange brand. The offerings in this store would include wine, beer and burgers.

A tie up for the better

As I mentioned earlier, Starbucks is known for the overall experience it provides. Customers can work, study, or entertain themselves through the Wi-Fi service available at its outlets while sipping their lattes. The coffee giant entered into a partnership with Google (GOOG) and Level 3 Communications to further enhance its in-store services.

The new Wi-Fi service is 10 times faster than the 1.5 Mbps speed that was being provided by AT&T. This is a smart deal for both companies, as Starbucks is getting better service while Google receives a broad market in the form of millions of coffee lovers.

Currently, the duo provides access to news and entertainment in the form of Wall Street Journal, Apple’s (AAPL) iTunes, USA Today, ESPN, Yahoo! Entertainment, and more. I believe that this is only a start of a long-term partnership between the companies which will pave the way for the next-generation Starbucks Digital Network.

The strong partnership

Starbucks also has a strong relationship with Green Mountain Coffee Roasters (GMCR). After the patent available wiith Green Mountain on K-cups expired way back in 2012, competitors exploded in the market to produce similar coffee shots. In order to maintain its presence, Green Mountain entered into a deal with Starbucks. According to the deal, the duo manufactures, markets, distributes, and sells Starbucks and Tazo-branded single-serve packs for use in Green Mountain’s Keurig single-serve machines. In over two years of partnership, Starbucks has shipped over 860 million Starbucks brand K-Cups; this in itself speaks of the volume that it can generate in the future.

As a beverage, coffee has the strongest market share in the U.S. Eventually, consumer preferences for one-time, ready-to-make coffee is likely to increase; this will benefit both Starbucks and Green Mountain.

Takeaway

Starbucks has grown itself from a coffee shop to a one-stop restaurant where you can sip a coffee, eat a sandwich, grab a pastry, and get some work done. This has been possible because its acquisitions and partnerships have been strategic, complementing its existing menu and atmosphere well. I expect the superb performance to continue in the coming quarters and suggest the inclusion of this stock in your diversified portfolio.

About the author:

Riddhi Kharkia
A practicing Chartered Accountant based out of India. I have keen interest in analyzing tech stocks that are driven by value.

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