Starbucks: Big Investors’ Divorce Grounds

Starbucks cup

BusinessWeek features the story of big investors dumping their interest in Starbucks in a new feature article; I’m Johnny-on-the-spot.


But Schultz faces a tough battle in bringing back the company’s traditionally prolific growth. As recently as 2004, Starbucks’ stock traded at an eye-catching 68 times earnings for the trailing 12 months, according to S&P research. “The big problem is they’ve been at the demands of Wall Street for so long to continually increase sales and increase the rate quarter-over-quarter,” says Andrew Hetzel, a coffee industry consultant. “But you can only do that for so long.”


What’s interesting about the debate over Starbucks’ future is that the seeds of its success—rampant expansion and the ability to lure mainstream coffee drinkers to its pricey brews—now could represent one of its greatest weaknesses. While broadening its customer base has galvanized sales over the years, it has also made the company’s revenues more susceptible to economic slumps, as lower-income consumers have been forced to cut back their purchases differently than a higher-income demographic, says Bank of America’s Buckley.

Also, the company’s trademark of specialty coffee loses its appeal if it stops being perceived as special and becomes too commoditized, says Hetzel. “You see Starbucks coffee served in airplanes, hotel rooms—it’s everywhere,” says Hetzel. “They’ve really diluted what that image means as a lifestyle brand.”

Not among my deepest thoughts, but it gets the point across. I’m Andrew Hetzel and I approve of this message.

You can read the complete article in BusinessWeek.


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Starbucks: Big Investors’ Divorce Grounds

2 Responses

  1. Starbucks recently closed 61 of its 84 Australian stores. In my view, they’ve failed to understand the Australian coffee beverage consumer; made the wrong product offerings and had an insufficient range of coffee accompaniments to purchase. If you believe Starbucks the company got hurt because it also had stores in low foot traffic locations. Sure some of their stores may have been in low foot traffic locations, but 61 out of 84? I think the low foot traffic excuse is just a smoke screen. About the only thing Starbucks are particularly good at is choosing the right location for a store. I can’t accept that it got location choice wrong in Australia 72% of the time! Marketing is about identifying customers needs and satisfying them. Starbucks took its eye off the ball and failed to do that. In Australia, the company unsuccessfully tried to apply a formula that seemed to be a success elsewhere and made no attempt to adjust to local market requirements. I’ll be generous and give Starbucks another 5 years before it’s exited the Australian market completely.

    Edward Cobb August 23, 2008 at 7:34 pm #
  2. Playing to the wrong fiddler will always cause one to hit a wall.

    Interesting observations, thanks

    David Donde August 18, 2008 at 10:37 pm #

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