SBUX – The Latest
Success in stock trading and investing also depends on understanding the strategy of businesses. Strategy defines the performance of the organization, which is why it is important to ensure you understand how the company is running its business and how that could relate to the stock market.
Starbucks (SBUX) has been dragging in same-store sales growth for the past six months. It has been missing analysts’ expectations in both the past quarters. All this has resulted in overall revenue falling below anticipation. The coffee shop chain’s management believes same-store sales will turn around in the year’s second half. So what could be its primary growth driver? There really should be a tangible factor that should cause this negative trend to end.
The key could lie in looking beyond coffee. And since the coffee chain acquired La Boulange back in 2012, it has been offering more food in its coffee stores. Since 2013, food sales at Starbucks increased 50% and it wants to double food sales by 2021.
SBUX – Improving Lunch Options
In spite of the expansion in non-beverage options, food sales have only been stable at 19%. That’s because it needs to tap further into the lunch potential out there. Lunchtime is one of those times of the day when food gets sold the most. Starbucks too states the 11 a.m. to 1 p.m. time as that part of its day when sales grow fastest. Yet, Starbucks isn’t quite perceived as a lunch destination. That’s the perception it needs to change.
To improve its lunch options and maximize the potential, Starbucks has been experimenting. It is testing a salad plus sandwich fresh-food menu for lunch, called Mercato, in Chicago. It partnered with Texas-based startup Snap Kitchen that offers grab-and-go meals that are healthy. As part of the test, Starbucks offers Snap Kitchen meals at five of its stores in Houston. But the test will be expanded soon to more stores.
SBUX – Strengthening Its Rewards Program
Starbucks is tweaking its rewards program. It has already introduced Star Dashes, which has changed the way customers earn rewards by incentivizing specific product purchases. The purchases can also be incentivized at specific times of the day. Discounts can also be used for incentivizing food purchases. Starbucks’ rewards and discount programs provide a good deal of food options and incentives for buying food. That’s what the fast food chain’s management relies on for improved same-store sales.
Unlike coffee products, food items provide lower gross margin. In spite of that, Starbucks stores still offer significant leverage, by lumping fixed expenses such as real estate leases to the product bill, to witness improved profits. Since 2013, the company has indeed improved 460 basis points.
That infuses a good deal of optimism in Starbucks’ performance as it heads to the second half. It has solid strategies in place. Trade SBUX both long and short commission free with TradeZero, the online broker providing free trading and 6:1 leverage.