Starbucks Burger: Good Strategy or a Possible Distraction?

A burger is worlds apart from coffee and cold refresher drinks.

Jun 2, 2014 at 1:28PM


According to a recent Associated Press article, Starbucks (NASDAQ:SBUX) will open a La Boulange bakery café in Los Angeles that will include expanded store hours until 10 P.M. and will sport a "modern farmhouse" theme. The restaurant will sell wine, beer, cocktails, and milkshakes. Most notably this new expanded restaurant will also sell "build-your-own burgers" among other things. There are two things wrong with this new store format that should concern Starbucks' long-term investors.

Starbucks' core competency
defines core competency as "A narrowly defined field or task at which a company excels."  This company excels at serving beverages, specifically coffee, tea, and refresher drinks. Over the past 10 years Starbucks expanded revenue and free cash flow 181% and 294% respectively resulting in a total stock market return of 243% doing just that. More recently, Starbucks year-to-date revenue and net income grew 11% and 18% respectively.  Adjusted for a one time litigation charge Starbucks grew its year-to-date free cash flow 44%. 

Starbucks also excels, though not as much, at serving high-end pastries. Recently, Starbucks reintroduced its cake slices after another line of pastries fell into dismal reception. Contemplation into serving dinner items and alcoholic beverages may draw in more customers and attempt to compete with other coffee restaurant chains that serve croissant sandwiches, donuts, and tea. However, it could be argued that the company stands in danger of devoting resources to something that could turn into a costly distraction.

Lack of long-term vision?
Linda Mills, a spokeswoman for Starbucks, in reference to future plans with La Boulange said, "We're going to see how this one goes." This may suggest that Starbucks lacks long-term vision when it comes to La Boulange's burger venture. A company vision for any initiative will increase its odds of success. The question remains, after spending $100 million  for La Boulange, is the company going to sink more money into a venture by the seat of its pants?

You could argue that this represents a test expansion, but only time will tell if it's a success or failure. 

Staying the course
While it's part of Starbucks' corporate culture to try new things, Starbucks should stay the course with its traditional Starbucks restaurants, serving its traditional coffee based drinks, tea, and refresher drinks while coming up with new ones. If Starbucks continues with its burger plans investors should keep an eye out for declining same store sales over the long-term. This could serve as indication of loss of focus. On the other hand, this relatively small bet could pay off. Long-term investors should hold onto their shares and collect dividends while waiting for these new initiatives to potentially pay off.

More stocks that pay dividends while you wait
The smartest investors know that dividend stocks like Starbucks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

William Bias owns shares of Starbucks. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers