retail news in context, analysis with attitude

Interesting piece in Barron’s over the weekend about Starbucks, and what management there plans to do in order to get its house in order. Some excerpts:

• According to the story, CEO Howard Schultz “says Starbucks will unveil a Starbucks card program this fall that will ‘surprise and delight’ customers. At a more traditional company that might mean cash back with purchases, but Starbucks customers seem to appreciate other things, like the company's commitment to sourcing coffee beans from growers who practice sustainable farming. The new program might well have a charitable angle, though Schultz won't comment.”

• “Starbucks is assuming its new products and promotions will boost same-store sales growth into the mid-single digits, while, on the cost side, some big expenses will decline. Milk prices, for instance, soared 80% at some points in 2007, but have been trending lower recently. The cost of leasing real estate also should fall, as more empty storefronts appear.”

• “If the economy continues to weaken, Starbucks would be wise to publicize the fact that its drip coffee doesn't cost much more than the next guy's in many markets. A 16-ounce cup of coffee at a Starbucks on New York's Long Island fetches $1.85, only a penny more than a medium at the Dunkin' Donuts across the street, and a dime more than a cup of Joe at the deli next door. Yes, McDonald's charges only $1.19, but many coffee aficionados say the 55% price differential is worth it … Schultz believes the next wave of Starbucks customers will be folks trading up from McDonald's and other chains who want a little ambience with their brew.”

And, the company says, there will more innovation in its stores in the next 18 months than in the last five years.
KC's View:
There is more than enough cynicism about Starbucks’ future, but it is interesting that Barron’s points out that there are analysts out there who believe that the company has a significant upside, and that management is taking the chain in the right direction. (I, for one, will be interested to see what the company’s new card program is going to be like.)

You can believe in Starbucks or not. I still have a sense that the company is throwing a lot of tactics against the wall to see what sticks. But that said, I keep going back for venti skim lattes, and no matter what Starbucks I visit, I always find a line.

And in the retail biz, a line is almost always a positive sign.