Today's blog post is dedicated to a company that has been on my watch list for the past several months. Ironically enough, this past Thursday some global worries made pretty much all indexes go on to the red and thus some companies were selling at discount. I took that opportunity to pick up my initial shares and start a position. I'd like to welcome Starbucks (SBUX) to my personal portfolio:
Unless you've been living under a rock for the past two decades or so; you are probably well aware of the phenomenon and "American Trademark" that Starbucks has evolved to be. To be quite honest, it still amazes me the way Starbucks devotees (and that's a LOT of people) don't think twice to pay an arm and a leg for a fancy coffee drink concoction.
I have to be honest in that I am very frugal. Hence, I can probably count the times in which I spent more than $2.50 at a Starbucks. My usual order is either a cup of tea or a small coffee with soy milk (for which they started charging $0.70 extra, by the way). And that's as far as my expenditures go. However, we all know I am in the minority. According to Starbucks Annual meeting it was announced that the average customer going in to a store spends approximately $5 per visit. This translated in to an annual revenue of almost $15 Billion for fiscal year 2013. Studies also show that the average loyal customers visits the store six times per month. Meanwhile, the "hard core fans" can visit upwards to 16 times per month (nearly every workday, to put it in to perspective).
Taking a look at Starbucks balance sheet; reported long term debt as of June 2014 is around $2 billion which is a drop on the bucket in comparison to how much money this company generates.
Why would a place that "sells coffee" be a good investment?
We all know that Starbucks is more than coffee. They sell tea, pastries, meals, mugs, as well as ambiance and peace of mind when you simply need to get away and relax with some fast Wi-Fi and a nice cup of Joe. Speaking from personal experience; there was no other place I rather be while studying for those challenging exams in graduate school. There is something in the air that simply allows you to focus. And they seem to have the "location" thing down. I recall the Starbucks by my school was consistently busy. And this seem to go for most if not all locations.
For those people terrified that the company growth story is over (after all, they do have over 19,000 stores worldwide). It would be good to keep in mind that management is striving to remain relevant and ahead of the game of any signs of competition. They seem to be experimenting with a few initiatives, one of them being "Starbucks evenings". You can read more about the exciting project here. They've also seem to have become a pioneer when it comes to paying for stuff using an app on your phone. I'd be curious to see how far they can take this technology as well what they'll do with the data they compile from customers. I also see their expansion plans quite promising. The most recent buzz is in regards to their growth in China. However, other countries are in the works as well. This should help ease worries of those individuals whom feel that the Starbucks growth story is over. I personally feel they still have a long way to go.
They are everywhere
Yes. Starbucks is everywhere and they are expensive everywhere! During a recent trip to Hawaii with a friend this summer; I remember the resort where we stayed had two locations (the lines every morning where unbelievably long). I also recall purchasing two bagels and two small cups of regular coffee for the nice total of $13.75. And you know what? for some reason I didn't think twice about this ridiculous charge until later when it hit me--- I paid almost $15 bucks for two coffees and two bagels (yikes!).
Ever been to a target or a Barnes and Noble? well, they are in there too. And is probably one of the reasons why Barnes and Noble has been able to survive as the Starbucks drives in the traffic. But that's just my personal speculation.
With no real competitor in sight, expensive coffee that no one thinks twice of buying, a healthy balance sheet and a promising future of growth- I am excited to have shares of this company in my portfolio. Next time I see someone paying $6.75 for a coffee concoction, instead of judging them; I will be smiling as I will be able to remind myself I am a part owner of an amazing company.
What are your thoughts on Starbucks?
Thank you for reading. And as always, cheers to profits!