COMPANY DESCRIPTION
Starbucks is a roaster, marketer and retailer of coffee. Co. purchases and roasts coffees that it sells, along with coffee, tea and other beverages and food items, through Co.-operated stores. Co. also sells a variety of coffee and tea products and licenses its trademarks through other channels such as licensed stores, grocery and national foodservice accounts. Co.'s portfolio also includes goods and services provided under these brands: Teavana, Tazo, Seattle's Best Coffee, and Ethos. Co. has four segments: Americas; Europe, Middle East, and Africa; and China/Asia Pacific; and Channel Development. SBUX operates through 22,000 company-owned and licensed stores.
ECONOMIC MOAT
Starbucks moat is dug around its impressive brand. SBUX’s ability to execute premium pricing at scale adds to the depth of the moat. SBUX is focused on geographic market expansion opportunities (China, India, Japan, and Brazil in particular), and growing its brand portfolio (Teavana, La Boulange, and Evolution Fresh).
OUTLOOK
Starbucks is executing well into 2015. A vast mobile ecosystem, including a new mobile ordering platform, is also enabling Starbucks to stay ahead of large rivals. We look for SBUX to aggressively expand its mobile and digital platforms. Mobile Order & Pay initiative, allows customers order and pay for purchases via their smartphones before picking them up at their local Starbucks shop. SBUX is also testing a delivery service in select cities with early signs looking promising. We continue to like this stock as a core long-term holding. It ought to provide attractive risk-adjusted returns through 2018-2020.
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STRENGTHS
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Building strong customer connect through value-added services
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Leveraging technology to build a robust distribution channel strategy
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Strong financial position
WEAKNESSES
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Product recalls
Tax evasion and lawsuits
THREATS
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Intense competition
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Compliance costs associated with government regulations
OPPORTUNITIES
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Entry into the health and wellness space
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Growing presence in key Asian markets
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Expanding presence in the growing single-serve coffee market in the US
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The growing office coffee marketplace
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The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.
