BusinessWeek features the story of big investors dumping their interest in Starbucks in a new feature article.
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.”
WEAKENED BY SUCCESS?
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.”
It gets the point across.
You can read the complete article in BusinessWeek.