Starbucks’ Food Business Could be the Next Big Growth Driver
Starbucks (NASDAQ:SBUX) plans to expand its food offerings. According to a statement by Starbucks’ CEO Howard Schultz, Starbucks will introduce “new products and complete categories” over the next 12 to 18 months and set up a global food business. He intends to build a multi-billion dollar business in the grocery industry for Starbucks, both in the U.S. and internationally. Starbucks’ competitors in the broader market for specialty coffee include McDonald’s (NYSE:MCD), Caribou Coffee (NASDAQ:CBOU) and Peet’s Coffee (NASDAQ:PEET).
Our price estimate for Starbucks stands at $37, implying a downside to the market price.
Food business looks lucrative for Starbucks
Starbucks has been researching new food items and spent $9 million last year on R&D for new food, drinks and equipment. [1]
We believe the below mentioned factors would be helpful for Starbucks in expanding its food business:
- Loyal Customer Base: Starbucks has a very loyal and dedicated customer base. We believe this would act as an already present customer base for their new food offerings in future.
- Worldwide Presence: Starbucks has a presence throughout the world with more than 17,000 retail stores in over 50 countries. This gives it a wider reach in reaching regular and prospective customers.
- Renowned Brand: Starbucks has established itself as a brand worldwide. We believe its upcoming food offerings would be accepted as ones with high quality.
However, given the present sluggish signal among economic indicators, it might be difficult to drive expansion plans in the near term. We believe the U.S. economy will take a while before bouncing back to its pre-recession levels.
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This could imply that Starbucks’ food offerings might not receive the expected response as anticipated by it from its domestic customers. However, internationally, Starbucks has massive expansion plans specially in China, India and South Korea. These emerging regions could satiate the demand for its upcoming food business.
See our full analysis for Starbucks stock here
Notes:- See: Starbucks CEO Howard Schultz Has Huge Global Grocery Ambitions, September 22 [↩]