3 Reasons a Slower Starbucks Is Better

Today, Starbucks (Nasdaq: SBUX  ) is a slower company. Slower revenue growth than its past self and slower than its highly caffeinated rival Green Mountain Coffee Roasters (Nasdaq: GMCR  ) and even Peet's (Nasdaq: PEET  ) . As recently as 2007, Starbucks expanded its company-operated store base by nearly 19%, or 1,342 stores in a single year. Since then, it has dramatically slowed store expansion, and the effects are apparent on more than the financials.

1. Slower drink preparation
With slower store expansion, Starbucks has been looking inward, focusing on how it can fine-tune its operations and brew up a better customer experience.  Yesterday, The Wall Street Journal reported on the company's latest efforts, which will limit to two the number of drinks a barista can work on at the same time. The company also now requires milk to be steamed for each drink -- no more sharing a pitcher of milk across multiple lattes. The company believes these changes will improve the quality and consistency of its drinks and reduce the number of errors baristas make when filling an order, without increasing wait times. Baristas quoted in the Journal aren't so sure, believing the changes will increase drink prep time and result in longer lines.  

2. Slower store expansion
But maybe slower can be better, if it means a better quality drink more consistently delivered, and maybe that holds true for Starbucks as a company, too. The transition from its 2007 pace to today's was not painless. In 2008 and 2009, the company shuttered stores and laid off employees, and its fiscal 2008 earnings plummeted by more than 50%. Today, the company is back on track, generating $1.36 billion in free cash flow over the last 12 months, and serving up a 2% dividend.

3. Higher-quality offerings
Following rapid store expansion in the 1990s through early 2000s, Starbucks' coffee competitor, McDonald's (NYSE: MCD  ) found itself in a similar situation, but a turnaround launched in 2003 focusing on store cleanliness and food quality rejuvenated the brand and the stock. McDonald's returns have exceeded those of the S&P and the restaurant industry during one-, three-, and five-year periods. If Starbucks is poised to accomplish a similar turnaround -- and it seems to be on the right track -- the stock could be a long-term winner even from current levels.

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Fool contributor April Taylor does not own shares of the companies mentioned. Green Mountain is a Motley Fool Rule Breakers pick. Starbucks is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 13, 2010, at 8:38 PM, refriedbean wrote:

    Depends on how old you are. If your young, you buy Starbucks and if your old, you buy Green Mountain Coffee Roasters and then you both get there at the same time.

  • Report this Comment On October 15, 2010, at 7:33 AM, adfoto wrote:

    Starbucks is slower but I am still loyal. Nothing else tastes as good as a Starbucks coffee, so I'll wait in line. I have tasted all the rest. Starbucks is the best for me.

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