The Starbucks Culture

Starbucks, the leading coffee retailer in the world, is traded on NASDAQ under the symbol of SBUX and in my opinion currently it is a BUY.

Since being founded in 1985 in Seattle, WA, Starbucks has demonstrated remarkably consistent growth, establishing itself as the premier player in the world coffee retail market. Typical of a company with a solid growth trend, Starbucks has strong fundamentals that reflect in the strong balance sheet and strong earnings being reported over the years. But “solid fundamentals” is not the only reason why I position myself in the Starbucks camp. I like SBUX because I believe in the appeal of the brand that transcends a wide range of demographics, and I believe in its loyal customer base that is willing to spend $2 on a cup of coffee and $3 for a tall chai latte.

Starbucks customers love not only the various hot/cold coffee types on offer; they are even fonder of the “Starbucks experience”. On offer are a wide variety of products such as whole bean coffee, “espresso” Italy-style, premium chai latte, a wide range of fresh and bottled line of specialty drinks, not to mention the munchies that include basket of delicious pastries and the aisle of ice-creams. And if you would like to sit down with your coffee (rather than have it on the go) you’ll love the pleasant green ambience, soft music, comfortable sofa (and free internet access) that make the Starbucks joint a happy place. Like some whipped cream on a cup of hot chocolate, the welcoming people at Starbucks hit the bull’s-eye. It is very hard to miss the huge fan following that Starbucks has. Look around, and you’ll notice that the Starbucks culture is steadily hitting every generation. It is one place where students work on their research, parents help their kids with homework, friends catch up, baby boomers read newspaper and some just surf. When I was a graduate student at the Case Western Reserve University in Cleveland Ohio, the local Starbucks joint was our regular hangout place. My girlfriends and me would catch up every Sunday afternoon at Starbucks, and catch up on the week that was. Times change, people move on and now I hangout with a different set of friends in a different city at a nearby Starbucks joint. Today Starbucks is serving its delicious products at every corner in the US and spreading its wings overseas as well. It is almost a “must-have” not only near every college campus and office complex, but also in most suburban residential areas.

In my opinion the Starbucks strategy of continuously growing by delivering high quality service leading to customer satisfaction and by continuously introducing new goodies will continue to work, and that is because it has the financial strength to support it. The numbers prove it. On December 14th 2006 Starbucks filed its 2006 annual report with the SEC indicating that it opened 2000+ new stores in the fiscal year 2006 and it aims at opening approximately 2000+ more stores in the fiscal year 2007. In comparison with year 2005, in the fiscal year of 2006 its total revenue increased by 22%, net earnings increased by 14%, operating income increased by 22% in the United States and by 31% in the international market. According to me it is the best in the coffee breed. It's closest competitor Caribou coffee company (CBOU) has reported net profit margin of -5.44% for the three month period ending October 2006 and -4.2% for the three month period ending July 2006 compared to Starbucks net profit margin of 5.85% and 7.4% in the same period respectively. Today Starbucks sells coffee in many countries other than United States, to name a few China, Australia, Canada, Thailand, United Kingdom, Singapore and Germany. In November 2006 it opened its first store in Brazil and it plans to enter various new markets around the globe in many countries like India in the near future. In December 2006 it opened its first 24-hour store in St. Louis, USA. Also, Starbucks is expanding its business by acquiring more coffee shops in various states like California, Colorado and Texas. This is the story of Starbucks’ accelerating growth.

Bottom line, Starbucks’ thriving culture supported by its strong fundamentals should carry the stock higher. So investors BUY SBUX and keep it long, in my opinion it should make your life greener.