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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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