Gaze upon a city street, and the sight of its cups may prove even more ubiquitous than that of its stores. When millions of people worldwide think of good coffee, they think of Starbucks (NASDAQ:SBUX).
Starbucks' 12,000 current locations affirm its reputation for blanketing the landscape with caffeinated bliss. While the company has stated its belief that the world could support 30,000 stores, Chairman Howard Schultz recently said in a television interview that he believes even that number will prove too meager.
It's not just that Starbucks plans one (or maybe more) stores in your neighborhood, in all likelihood. The company also has aggressive international plans in huge international markets like China. And its foray into such promising markets gives investors good reason to remain jazzed about this company's growth prospects, and convinced that the good times will continue for quite a while yet.
Starbucks may have plenty of competition -- Caribou (NASDAQ:CBOU), Peet's (NASDAQ:PEET), and Green Mountain Coffee Roasters (NASDAQ:GMCR) all spring to mind, not to mention scores of mom-and-pop coffee shops -- but none have managed to put the brakes on it. It's arguable that Starbucks even paved the way for these other companies to exist, since it expanded consumers' appreciation for gourmet coffee in an upscale atmosphere. Still, that doesn't mean the other contenders have ever even challenged its leadership role.
Forget about the low end putting too much of a squeeze on Starbucks either. Sure, McDonald's (NYSE:MCD) and Dunkin' Donuts both covet Starbucks' customers. However, they most certainly don't give their customers the pleasant experience and sense of well-being that Starbucks has worked hard to achieve and infuse into its brand.
Living the lifestyle
Of course, the idea that Starbucks is a mere coffee company, with no competitive advantage other than its brand, is a far too simplified view. It's more about Starbucks' "third place" mentality than its simple coffee-slinging. Starbucks makes its customers feel good about frequenting its stores, which often act as a relaxing oasis from the outside world. It provides health care and stock plans for its employees, and stewards socially responsible initiatives. Witness its environmentally friendly packaging and its acquisition of Ethos Water, which donates some proceeds to help provide clean water in Third World countries.
The "third place" mentality also fosters Starbucks' increasing forays into other products that fit perfectly into coffee culture. Its musical offerings have been well-received. Although its co-marketing of Lions Gate's (NYSE:LGF) Akeelahand the Beefailed to make a splash at the box office, the film still got solid reviews, and its theme fit well with Starbucks' brand. Furthermore, the company's getting into other elements of the arts, from books to the Starbucks Salon, a dynamic, "nomadic" platform that travels the country, showcasing both emerging creators and established artists trying new and unexpected things.
Although Starbucks is obviously at the very beginning of its foray into media distribution, it's arguable that with its carefully picked content, all of which seems to fit perfectly into its brand, the company's poised to become an important tastemaker, helping its aspirational branding by appealing to the carefully picked few rather than the overwhelming plenty available elsewhere. Starbucks was the tastemaker in coffee, and it seems logical that Starbucks can become a tastemaker in carefully chosen media offerings as well, increasing its sales while bolstering its brand.
Although investors currently seem to be worrying whether Starbucks can keep up its heady growth, the company's recent decision to increase prices shows that Starbucks has no fears. (The company arguably wouldn't take such a chance if it feared alienating its customers.) Pricey premium coffee has always been Starbucks' brand differentiator -- Starbucks is an affordable luxury, and if it has always charged a premium, that may very well help explain why it's always been viewed as coffee's cremede la creme.
Starbucks has numerous strategies that should help it continue to provide the double-digit increases in earnings and sales investors have come to expect. Wall Street bears have underestimated Starbucks before, and it seems likely that they're doing so once again.
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Alyce Lomax owns shares of Starbucks. The Fool's disclosure policy is even better with whipped cream and a shot of hazelnut syrup.
