Who would have thought I’d turn bullish on Starbucks (SBUX). This company has been making a ton of deals and all of them are associated with good companies that continue to follow their company’s beliefs: having a positive impact on communities they serve. On their site, they state “we didicated ourselves to striking a balance between profitability and social conscience. We continue to believe that the ultimate way to scale the power of brand is to share the good we do so that Starbucks and everyone we touch – can endure and thrive.” I usually consider the small company first before giving my money to big conglomerates, but Starbucks continues to surprise me. First, they are a big company and they continue to make bigger profits, but they have continued to be health conscience and follow methods that are healthy to society.
They don’t use any high fructose corn syrup. They use healthy organic ingredients and they continue to make new businesses that do the same. They are also contributing to local communities and following environmentally friendly practices.
Now, you wanted to hear why I am bullish. Let’s start out with the most important things that happened recently. First, they opened up a Tazo Tea store. If you have been to any Teavana in the mall, you will notice teas going for up to $50/ounce. You will notice that they give samples of teas to customers and with just a few sales they can make huge profit margins from these teas. Starbucks owns Tazo Teas and it is a great line of flavorful teas. By opening their own tea store, they are opening a new line of stores that will continue to be prosperous, healthy, and make a good amount of money for them.
Second, they also getting into the fresh juice business with Evolution Fresh juice stores. This is a $50 billion world of business in health and wellness, and they can definitely enjoy a nice cut by just doing a small percentage in this business. We will continue to monitor them as these new stores work into the market and start gaining traction. Notable competitor Jamba Juice might have to open their eyes a bit wider when Starbucks starts moving into their business. They are not in direct competition but both are in the fresh drink business. McDonalds moved in with the smoothies and they have been doing quite well, so I won’t be surprised if Starbucks can be prosperous in this space also.
Third, Starbucks is adding crafted beers to their stores. This can be a huge boon for them. It will definitely attract a different group of people but I believe it will bring more traffic to the stores. They are experimenting with a small sample of stores and they will continue to ramp up as it gains traction.
Fourth, Starbucks has partnered with Coinstar (CSTR) to bring coffee to the vending machine. Coinstar will be working with Seattle’s Best Coffee, a coffee company owned by Starbucks, to put their coffee in vending machines across the nation. I expect this will have a huge branding growth for the company and it is something that you haven’t seen yet in the United States.
Fifth, Starbucks has been revamping their pastries and baked goods by buying a bakery and bread company. They are planning to expand their food business with a $100 million cash deal to buy Bay Bread LLC. It is expected to close in the fourth quarter. Starbucks hopes to popularize Bay Bread’s French Bakery La Boulange in all their stores. This puts them in direct competition with Panera Bread (PNRA) which has been doing really well in the sandwich business. You can definitely see this in their stock price also.
Currently Starbucks is trading a low of $52.09 at the close of June 28, 2012. I definitely think it’s at a nice bottom and it would be a great time to pick some stock up and ride the wave up. With all these partnerships I definitely see great things ahead for this company and I expect a lot more reward than risk.
Get in while it’s cheap and enjoy the ride up !
