Yesterday, I was having a lighthearted discussion with fellow Fool Alyce Lomax about Starbucks (NASDAQ:SBUX), its pending earnings release, and how the company isn't so boringly predictable anymore.
What I mean is that the days are gone when this Motley Fool Stock Advisor selection would simply pile up 25% sales growth on same-store sales of 7% or higher and eat the earnings estimates alive. Now, the increasing costs of labor and commodities that have ravaged other large restaurants have also finally caught up with Starbucks.
At least that's the logical consensus as to what's happening with the company. But I have a different argument. I think it's me, and people like me, who are torpedoing Starbucks. We're the customers who were once loyal to Starbucks but, for one reason or another, have gone astray.
My loyalty to Starbucks came primarily from being a customer while I was living in Japan. In the cafe near my Tokyo office, the service was perfect. The baristas and employees always knew what I wanted, were friendly, and were almost always quick. I had no reason to go elsewhere. But when I returned to the U.S. -- well, let's just say I found the experience at shops in the D.C. area to be well below the standard I was used to. I largely chalked this up to the differences in service between the U.S. and Japan, which are vast, and in all honesty, Starbucks' service is still better on average than that of its competition here.
About a year later, our office moved to a new location, and it became more convenient for me to stop at Dunkin' Donuts on my way in to work. I gradually started doing so. After a few months and some inconsistency in the lattes at the Starbucks near the office, I started going to Dunkin' Donuts more often and to Starbucks less and less frequently. I still do like Starbucks and go there on occasion, but I don't go there exclusively, the way I used to. I don't always get a good cup of coffee from Dunkin' Donuts, either, but when you can't differentiate yourself from a competitor and take away some of the ambivalence in the mind of the consumer, you're not doing yourself any favors.
This is why the memo earlier this year from Howard Schultz is so important. Investors should be paying attention to the progress the company is making on once again differentiating itself. Even if McDonald's (NYSE:MCD), Dunkin' Donuts, or Caribou Coffee (NASDAQ:CBOU) are making some inroads, Starbucks' problems are fixable, and with revenue up 20% this quarter, the brand still resonates with consumers.
I fully expect that Starbucks will once again get the formula right and start kicking butt. The only doubt that lingers in my mind is whether the company can fix the problems while continuing to open more than 2,000 stores a year.
Nathan Parmelee still owns shares of Starbucks and isn't inclined to sell yet. He does not own shares in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.
