Starbucks Is Doing Everything Right, and Its Stock Price Is Proof

Sam Becker
February 26, 2015

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Source: Stephen Shaver/AFP/Getty Images
From a simple storefront in downtown Seattle to an international empire, coffee chain Starbucks has come a very, very long way. The company is one of a select few that have truly shown how far a relatively easy format and idea can go, and you can see the proof on nearly any major thoroughfare in cities across the world. But it’s not just that Starbucks has been able to expand to such great lengths — it’s that they’ve been able to sustain and continue to grow its customer base that is truly impressive.

Source: Google Finance Your Reaction?
Source: Google Finance
A quick look at the company’s stock price says it all. Over the past five years alone, the stock has shot up to prices valued at more than $90 per share from around $20 in 2010. The company also has a market cap of more than $70 billion, and there isn’t much concern that things will slow down in the near-term.
A quick look at the company’s financials really drive home the point. For the first fiscal quarter this year, net revenues spiked 13% to $4.8 billion, global comparable store sales went up by 5%, and traffic increased by 2%. People are dumping money onto their Starbucks cards like it’s nobody’s business as well, with a record $1.6 billion being loaded onto the cards during the quarter, representing a huge 17% increase. This, according to the company’s earnings statements, shows that the nearly 45-year-old company is not only surviving, but thriving.
“Starbucks record Q1 fiscal 2015 financial and operating performance was exceptional by every metric and standard,” said president and CEO Howard Schultz. His sentiments were echoed by the company’s CFO Scott Maw, who credits the company’s sharp financial focus and innovative business methods for Starbucks’ recent success.
“Starbucks results in the first quarter of fiscal 2015 were very strong, with notable growth across the globe,” he said. Our continued ability to drive growth through innovation, operational excellence, and our unique customer connection, along with our sharp focus on financial discipline, give us confidence in reaffirming our growth targets for fiscal 2015.”
It’s clear that Starbucks, in a manner of speaking, is killing it. The thing that has many people scratching their heads is how, exactly, they are doing it. After all, it’s just a coffee chain. They have a limited (but growing) food selection, and face new and powerful competition on almost every front from the likes of Dunkin Donuts and McDonald’s. Yet, it doesn’t seem like anything is slowing Starbucks down.
Why is that?
The Motley Fool theorizes that Starbucks has been able to take advantage of its premium brand and name recognition to increase its prices, without suffering lost sales as a result. Last year, the company announced it would be increasing prices of its beverages slightly, which was met with some protest. But Starbucks was confident that the gamble would pay off, and that its customers wouldn’t go to its rivals to save a few cents. For the most part, they were right.
The Puget Sound Business Journal (PSBJ) also has some answers to how Starbucks has been able to keep growing, and it says that it comes down to two major factors: “loyalty and technology.”
Offering mobile payment options, its own mobile application, and other tech offerings, Starbucks has been one of the first major companies to adopt a wide range of consumer technology and seamlessly integrate it with its stores. That also helps bring in repeat business, the PSBJ says, helping boost those same-store sales. Delivery is on the way as well. And don’t forget about the company’s loyalty program — which boasts more than 9 million members, who on average spend three times as much at the chain than non-members — has also been a boon for business.
There’s also loyalty among the company’s employees, which is likely saving Starbucks a hefty amount in turnover costs. That loyalty has largely been brought on by a number of company-wide initiatives meant to earn its employees trust and respect, like the Starbucks College Plan, a series of pay raises for its baristas, and even a more lax dress code, allowing for tattoos and piercings to be shown openly.
Starbucks has managed to stir all of these ingredients together to produce a business plan that is not only successful, but obviously quite lucrative and rewarding. Investors are now seeing the results in ever-increasing share prices, even though the company at its core is still doing more or less the same thing it’s been doing all along. And what Starbucks has been doing, it’s been doing right.
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