Please ensure Javascript is enabled for purposes of website accessibility

Starbucks' "To Go" Initiative May Make It the "Go-To" Place During the Coronavirus Outbreak

By Adria Cimino - Mar 22, 2020 at 12:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Starbucks' "to go" efforts should preserve some revenue as people flee public places.

As people stay away from crowded places during the coronavirus outbreak, leaving restaurants and bars empty, Starbucks' (SBUX -0.53%) new "to go" initiative in the U.S. and Canada may keep coffee fans coming around to get their daily cup of joe. Starbucks initially announced a system that included orders at the counter, then five days later moved to drive-through only. Though Starbucks, like peers, surely will see a drop in traffic, the effort may help the company minimize losses.

A Starbucks employee holds a to-go cup of coffee.

Image source: Starbucks.

The coronavirus outbreak isn't new to Starbucks. As the crisis developed and escalated in China, the company's second-largest and fastest-growing market, Starbucks closed 80% of its stores there. Starbucks, which has since reopened more than 90% of them, said in a recent filing that second-quarter revenue in the country may fall by $400 million to $430 million due to the outbreak. As for earnings per share, the negative effects will be in the range of $0.15 to $0.18 per share on a GAAP and non-GAAP basis.

Orders through the app

China's coronavirus cases have topped 81,000 as the country most hit by the pandemic, but transmission now is slowing as it picks up in other areas of the world such as the U.S. -- Starbucks' biggest market. The U.S. currently has reported more than 27,000 cases. Starbucks said on March 20 that in the U.S. and Canada, it would move to the drive-through only model in company-operated stores in the U.S. and Canada for a period of two weeks. About 60% of Starbucks shops have drive-through services, according to press reports. 

Now the question is whether Starbucks' plan is enough to help it through the coronavirus pandemic. If the company is able to maintain a steady stream of takeout business through the drive-through, the strategy could help revenue. But investors shouldn't expect miracles when the next earnings report rolls around.

This temporary model, focused on grabbing your order and driving away, is the opposite of the usual Starbucks experience that involves sitting down -- and often, with others. Those customers won't be at Starbucks these days, or anywhere else, considering the need for social distancing in order to slow transmission of coronavirus. The strategy will, however, help Starbucks maintain at least some of the customers who stop by quickly for their daily coffee. Things could change if the government orders a complete shutdown of restaurants and similar establishments, though.

Lowest since 2018

Starbucks shares have lost 39% so far this year, falling to their lowest since 2018. Further declines will depend on the duration of the coronavirus outbreak in the U.S. As Americans avoid public places and fear of contamination escalates, it's likely people won't flock to Starbucks drive-through windows in droves. So what does this mean for investors? As Starbucks announced negative effects on earnings from the coronavirus crisis in China, it may have to update those figures considering coronavirus effects in the U.S. That could represent another wave of bad news on the horizon.

That said, this pandemic -- no matter how painful for companies -- is temporary. Though it may hurt a quarter or more of earnings, otherwise healthy companies like Starbucks remain interesting over the long term. Starbucks has reported positive earnings surprises for three out of the past four quarters and has increased revenue over at least the past three years. Once the coronavirus crisis passes, it's likely these positive trends will continue.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$77.70 (-0.53%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.