Sunday, 8 March 2015

Starbucks caffeinating you, your portfolio and your property

Starbucks (SBUX) is world famous for selling coffee they are also famous for their store locations. SBUX spends very little on marketing preferring to spend on an ever expanding number of stores with some of the best prime locations. If you're everywhere you don't need to advertise!

Location Starbucks
This real estate expertise was backed up by Zillow the American real estate research site. They conducted research on key factors that would indicate an increase in property prices. Among the most consistent indicators was proximity to a SBUX store. They found that homes located within a quarter mile of a SBUX's store have gone up by 96% compared to 65% for all US homes. Dunkin donuts was up only 80%. As the distance to store increased the property increase became smaller.

Balanced growth not frothy
Can it still grow stores? Most of SBUX growth will come from overseas in particular Asia where they can grow their 1,500 stores in China to 5,000. Otherwise SBUX is maximising the locations it already has. It has multiple revenue opportunities such as increasing food contribution which is 19% of transactions, evening offers like wine and cheese and the big one this year is digital ordering.


Source: Starbucks William Blair Conference

Espresso express 
SBUX is trialing express order and pay in their Portland stores. The great thing about express ordering is that customers will have to sign up as a rewards member. This should help retain the customer making them even more loyal to SBUX which they can leverage for one to one marketing. So far results are above expectations. They are seeing a lot of curiosity from other customers when others are ordering direct. SBUX also plans to trial order and delivery from mid 2015. Hopefully this can extend the impact of their location premium!

SBUX's is dominant in the US and is replicating this success in Asia. Shanghai has the most SBUX stores 320 of any city in the world. SBUX is trading on a high multiple but they aren't many companies out there that sell an addictive product with long term profit growth targets of 15-20% that can also increase your house price. The next time you're at SBUX make sure you budget some time to look at local property.

Jason


Disclosure: Decisive has a long position in Starbucks (SBUX) stock.


The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.