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A Unique Starbucks Will Open Outside Disneyland

By Dan Moskowitz – Mar 18, 2014 at 6:00AM

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Starbucks and Disney… what could possibly be a better combination? There are several reasons why this is an important move for Starbucks.

Putting your money alongside Starbucks (SBUX 0.06%) or Walt Disney (DIS -0.84%) is often a good decision. Both companies feature top-notch management as well as products and services that are in high demand. When these two companies team up, though, it makes for a very powerful relationship.

A unique Starbucks
There are several Starbucks locations throughout Disney theme parks, but they're all franchised and standard locations. The Starbucks opening at Disney Resort Anaheim's Downtown Disney is company-owned and far from standard.

In regards to uniqueness, this Starbucks will be made from reclaimed wood from old railroad box cars and feature an outdoor wall with 1,000 native plants that form the shape of a coffee cup. It will have 150 seats. This might seem like a lot, but Anaheim is often hot, and people exiting the park will be looking for refreshments. The location is ideal.

This Starbucks will also offer a large video screen showing where Starbucks grows and harvests its coffee beans. When I first read "large video screen," I hoped it would show real-time roller-coaster action within the park; this would drive excitement for those entering the park or allow exiting visitors to relive their recent adventure. Coffee bean harvesting will have to do, I guess. There's another unique feature of this particular Starbucks that's worth noting, too: an interactive touchscreen for customers to draw and write on.

Looking beyond the impact of one Starbucks
Disneyland averages 15,980,000 visitors per year. That's a massive amount of consumers. Furthermore, the majority of the people visiting the park are families. Many of these consumers are young and will remember their experiences for the rest of their lives. The point? By getting the Starbucks name into consumers' minds at a young age, it establishes a connection. All Starbucks needs to do is deliver quality product and service, which based on past results at other locations is a likely scenario.

While Starbucks might not want to admit it, strengthening brand recognition in the west, especially California, will be necessary now that Dunkin' Donuts -- subsidiary of Dunkin' Brands Group (DNKN) -- is planning its westward advance.

Starbucks and Dunkin' Donuts might target two different consumers, high-end versus middle-income, but there will always be overlaps. Those consumers on the fence could determine which company sees the most growth in California in the future.

Dunkin' Donuts recently established agreements for 101 traditional restaurants in California, and it has a long-term game plan of opening 1,000 locations in California. Looking at the bigger picture for Dunkin' Brands, it opened a net new 790 locations globally in 2013, and it plans on opening 685-800 net new locations in 2014. That's the sign of a healthy company that believes in its future prospects.

Getting back to the domestic scene, Dunkin' Brands should see strong growth as it expands west, which is likely to please investors. On the other hand, Starbucks has already established a strong presence in The Golden State, and its move to set up camp outside Disneyland is brilliant. Not only will Starbucks loyalists order their coffee in the morning, perhaps on the way into Disneyland, but they might order iced beverages on the way out as a reprieve from the heat.

Fiscally speaking, Starbucks generated $439.10 million in operating cash flow over the past year, whereas Dunkin' Brands generated operating cash flow of $141.80 million. Therefore, Starbucks will have more opportunities to reinvest capital into its business for growth. However, if Dunkin' Donuts succeeds with its westward expansion, then cash flow will increase and allow it to reinvest more in its business. It will find itself in a virtuous business cycle.

The Foolish bottom line
Starbucks should increase its brand recognition with its Anaheim Downtown Disney opening. Since many of these consumers will be young, it's an added long-term advantage. This is also an important step for Starbucks as it will help further strengthen its brand in a state where a competitor -- Dunkin' Donuts -- is preparing to make a strong push.

Both Starbucks and Dunkin' Brands are still growing, which has a lot to do with them both selling a mildly addictive product – coffee (caffeine.) That being the case, they're both likely to remain long-term winners. 

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Starbucks and Walt Disney. The Motley Fool owns shares of Starbucks and Walt Disney. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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