While coffee's not exactly essential, many people have a hard time getting through the day without it. So while stores all over the U.S. have almost completely shut down, Starbucks (SBUX +0.30%) is keeping its customers going with drive-thru. While closing sit-down and managing with fewer people out and about, the company will likely see a decline in sales for the current quarter. But that's not stopping it from paying employees and coming through for patrons.
It's this type of attitude and effort that sets Starbucks apart and makes it such a strong investment option for many. As of March 25, Starbucks stock is down 27% year to date, which makes now a great time to consider adding this discounted stock to your investment portfolio. Here are three reasons why.
Image source: Starbucks.
1. It will return to growth
While no one can say a return to growth will happen once the worst of the pandemic has passed, everything points to Starbuck's stock price recovering. It has such a leading edge in its business that it's hard to think of any similarly sized competitors operating at its level in the U.S. market. Dunkin' Brands Group is occasionally brought up for comparison, but it operates a different restaurant concept. Even so, for comparison, Dunkin' took in $1.4 billion in sales for fiscal 2019 while Starbucks raked in $26.5 billion during the same time period.
Rather than resting on its laurels, though, Starbucks innovates relentlessly in product and technology. It's already seeing sales begin to return to normal in China, where it closed stores temporarily until COVID-19 was restrained. Roughly 90% of those stores are now open, and the company is confident that U.S. stores will reopen in the coming weeks as well.
2. It has a solid story
After the Great Recession in 2008-09, Starbucks was struggling a bit. Co-founder and long-time company executive Howard Shultz said in an interview at the time: "And so it was a death march of [statements that] Starbucks' days are numbered, its best days are behind them, it's no longer relevant. The headlines on Wall Street were, McDonald's will definitely kill Starbucks." in 2008, Shultz returned as CEO of the "sinking ship" and changed its course, bringing back a focus on the customer. Management created the "Starbucks experience," which is all about creating an atmosphere where customers enjoy coming in to get their cup of coffee. It introduced the idea of building a community of partners and patrons, where both had a part in the stores' development.
This has been the key to its success since then, and the relentless push to meet customer needs has motivated the company to invest in technology as a way to strategically scale its abilities as a mass producer of coffee where every cup comes with a personal touch.
This has played out for Starbucks in increasing annual sales. This is how it looked over the past five years:
| Metric | 2015 | 2016 | 2017 | 2018 | 2019 |
|---|---|---|---|---|---|
| Net revenue increase, year over year | 17% | 11% | 5% | 11% | 7% |
Data source: Starbucks' financial releases.
3. It takes care of its employees
A key element of the customer experience is investing in the company's workers, whom it calls partners. One example is that Starbucks was the first privately owned company to offer stock options to part-time employees (before it became a publicly traded company).
This is obvious in the current situation, where the company has made several promises to its workers, including full paid leave for any reason through April 19, as well as catastrophe pay and mental health services.
Starbucks knows that happy workers are loyal workers and loyal workers create a better environment for loyal, happy customers. Current CEO Kevin Johnson noted in a letter on Monday that even after workers were notified that they could stay home and get paid, they still came to work the next morning, and he then decided to increase wages for workers who chose to step up. This kind of treatment is what lets the company keep churning out its product and take in revenue during a downturn. And this is why investors in restaurant stocks should think about purchasing Starbucks before its price goes back up.
