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Starbucks Is 1 Way Investors Can Play the Return to Office

By Parkev Tatevosian, CFA – Aug 16, 2021 at 8:17AM

Key Points

  • Starbucks added more drive-thru locations, which will help capture sales from work commuters.
  • Starbucks revamped its rewards program, making it easier for high-value customers to earn points.
  • The coffee market is estimated to grow at a compound annual rate of 8% to 9% over the next three years.

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After over a year of working from home, employees are getting calls to return to the office.

Businesses are making plans to bring employees back to offices. Although the spread of the delta variant of the coronavirus could delay those plans by a few months, businesses want their staff back in offices, at least for part of the week. 

Not all companies are implementing the same policy. Some have permanently gone to remote work. Some will be hybrid, bringing people back a couple of days per week. One thing is for certain: People will spend more days at the office in 2022 than they did this year. So how can investors play this trend? 

One way is with Starbucks (SBUX 0.04%) stock. The company will benefit as commuters stop at a Starbucks drive-thru for a cup of Joe and maybe a breakfast snack and as people go for a coffee break while at work.

A woman driving with a coffee in hand.

Image source: Getty Images.

Adjusting to the new working arrangement  

Sales shifted for Starbucks during the pandemic. The company was forced to close many of its locations to in-person guests. It emphasized digital orders for pickup and delivery. And folks spending more time at home made fewer trips to Starbucks but spent more on each visit. 

Now, as economies are reopening, people are getting more opportunities to visit a Starbucks. If you are already on the road, you are more likely to stop at a Starbucks than if you don't leave your home all day. Indeed, here is what management had to say about the positive effects of reopening: "The reopening of markets is translating to incredible increases in demand for Starbucks as people are again on the go, reconnecting and socializing with one another."

Starbucks did not sit still during the pandemic. It made a few changes to fit better how the world will be living and working in the aftermath of the pandemic. For instance, it repositioned its store portfolio, emphasizing drive-thrus and suburban locations. While there will likely be a return to office working in the next few months, remote working looks to be a long-lasting consequence of the pandemic. That lessens the need for Starbucks locations in high-priced downtown office districts. And drive-thru sales represent 75% of Starbucks' total U.S. sales in the past 12 months.

Additionally, Starbucks altered its rewards program, making it easier for more people to earn rewards on their purchases. The change caters to frequent coffee drinkers, rewarding them for their continued enthusiasm for Starbucks products. 

The changes better align Starbucks with how consumer lifestyles have changed during the pandemic. 

Investor takeaway 

Looking beyond the next few quarters and the return to offices, the coffee market is estimated to grow at a compound annual rate of 8% to 9% over the next three years. That gives plenty of room for Starbucks to reach its annual comp growth target of 4% to 5% and capture incremental sales by adding new stores.

The company has gotten through the worst of the pandemic and is arguably in a better position to prosper than it was pre-pandemic. It has improved its rewards program, repositioned its store locations to adjust to more time spent working remotely, and gained market share in a growing industry. 

Starbucks is not the only way investors can play the return-to-office trend, but it's one that could work nicely in the long run. 

Parkev Tatevosian owns shares of Starbucks. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends the following options: short July 2021 $120 calls on Starbucks. The Motley Fool has a disclosure policy.

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