Experimenting The Caffeine Experience
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Starbucks Corporation (NASDAQ: SBUX), the largest coffeehouse company in the world, is experimenting the way people experience coffee.
The community coffee shop
Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting the highest-quality Arabica coffee in the world. Today, with stores around the globe, the company is the premier roaster and retailer of specialty coffee in the world. In 1992 the company was not a trenta-sized juggernaut, but a longshot beverage company with less than 100 stores with an understanding that espresso-based beverages were on trend but speciality beverages was not in itself a business driver. At that point it was about establishing the American idea of the coffee house. The idea of coffee house was then already hundred years old in Europe, it was all about community. So that community coffee house was crafted into an archetype, the plush-chaired, dark-wooded to form the Starbucks that we all know today. Yet Starbucks still had to win over America city by city in a strategic land war, so they made their way into strip malls and shopping centers, recognizing coffee as an impulsive convenience purchase to complement a trip to the grocery store or post office. Each regional strategy had to be tailored at the city level, but it always started with a convenience-based link.
The shop model
Last week in Denver, Starbucks, iconic for lounges and free Wi-Fi, opened a store unlike any before it. There are no leather chairs or free power outlets. In fact, there’s no space for the customer at all. Starbucks has reimagined the coffee hut as a “modern modular,” LEED-certified drive-thru and walk-up shop. The building was constructed in a factory and delivered from a truck, but its facade is clad in gorgeous old Wyoming snow fencing.
Starbucks had nearly 20,000 locations as of September, 2012. Any given American could recognize a Starbucks from their periphery, but the new storefronts may have would-be customers and anti-Starbucks diehards doing a double take. Starbucks recently commissioned starchitect Kengo Kuma to design an outpost in Dazaifu, a small city in Japan’s Fukuoka Prefecture that, with walls covered in a matrix of wood planks, is a striking departure from the company’s typical uninspired interiors filled with tacky pendant lighting and faux-wood finishes. Earlier this year, it opened an experimental shop in Amsterdam, a showcase of slow-brew coffee, local craftsmanship, and eco-friendly furnishings. And according to The New York Times, Starbucks is investing millions in making over hundreds of its stores in France to appeal to coffee aficionados who favor the personalized atmosphere of cafés.
The payment mode
Recently Starbucks CEO Howard Schultz and Square CEO Jack Dorsey announced that customers will be able to use Square Wallet to pay with their mobile phones at U.S. Starbucks stores beginning in early November. The alliance between the coffee chain and the mobile payment app developer will also permit smartphone users to locate the nearest Starbucks shop through the Square Wallet app.
In August, Starbucks invested $25 million in Square Wallet and its CEO joined Square’s board. Square’s mobile payment app is available for Apple‘s (NASDAQ: AAPL) iPhones and smartphones running Google‘s (NASDAQ: GOOG) Android operating system. As a further testament to the company's innovation in mobile payment, the Starbucks mobile application is now integrated with Apple's Passbook allowing customers' Starbucks Cards to appear on their iPhone screen automatically after they enter a favorite Starbucks store and by next summer customers will also be able to send tips to their servers with the app.
The current financials
With a market cap of $37.04B and with a P/E ratio of 27.18, the SBUX shares are being currently traded at $48.74. The debt/equity ratio is 12.53 while the EPS is 1.79. Starbucks rang up more than $8 billion in U.S. sales in fiscal 2011.
What about the competitors
Dunkin' Donuts in August released its own mobile app with a payment feature that is similar to Starbucks'.
Nigel Travis, chief executive of Dunkin Brands Group Inc (NASDAQ: DNKN), said the doughnut and coffee chain's payment app would save franchisees "a considerable amount of processing fees" because it also reduces the number of credit card transactions. The app includes payment capabilities with any Dunkin' Donuts card stored in the phone. The Merchant Customer Exchange had earlier announced that Dunkin' Brands, the parent company of Dunkin' Donuts and Baskin-Robbins, has committed to the mobile-commerce solution.
Dunkin’ is currently in the process of rolling out a revamped loyalty program, currently in beta testing, that is expected to be launched at the beginning of 2013. The company expects to include social media and other options. Dukin’ has 7.3 million Facebook fans and an active community of Twitter followers. The company’s previous loyalty program, featuring a traditional plastic card, ended in 2011.
With a market cap of $3.71B compared to $37.04B of SBUX, the DNKN shares are being currently traded at $30.75. The P/E ratio is 58.75 while the debt/equity is 197.53% with EPS of 0.52.
By tapping into mobile payments, Peet's Coffee & Tea, Inc. (NASDAQ: PEET) is acknowledging that there is a need from consumers to buy items, such as coffee, on their handsets. Peet’s Coffee & Tea is going head to head with its competitors in the mobile commerce space by signing on as the retailer using Google Wallet. In addition to accepting Google Wallet payments, Peet’s Coffee & Tea is also letting consumers pay via MasterCard PassPass. This initiative marks Peet’s first major mobile deal. The company doesn’t have the same national footprint as Starbucks but is still a competitor. “Providing the option to pay using NFC-enabled smartphones with Google Wallet and MasterCard PayPass enabled cards creates yet another way we can provide exceptional service while, at the same time, serving the freshest and highest-quality coffees and teas,” said Kay Bogeajis, vice president of retail at Peet’s Coffee & Tea, Emeryville, CA.
With a market cap of $967.30M compared to $37.04B of SBUX, the PEET shares are being currently traded at $73.47. The P/E ratio is 67.76 while the debt/equity is 0.00% with EPS of 1.08.
Innovation is the key to leadership
Starbucks, of course, can’t afford to be totally idealist. They still have market challenges of their own and, sooner or later, there are only so many large coffee houses one can build and expect profitability. The issue is one of neighborhood-level demand. Starbucks sees countless markets that might exist locally well as globally. With Starbucks experiments with caffeine experience around the world leading to its growth, the stocks are bound to soar in recent times.
SomnathGuha has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Starbucks and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Apple, Google, and Starbucks. Try any of our Foolish newsletter services free for 30 days. 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.If you have questions about this post or the Fool’s blog network, click here for information.