Starbucks (SBUX) has been the king of coffee in the U.S. for as long as getting expensive coffee has been a thing. CEO Howard Schultz virtually invented the category. Despite its dominance and widely respected chief, Starbucks as a stock has been dead money for 2014. In the attached clip, Brian Sozzi of Belus Capital Advisors offers three reasons Starbucks is stuck in the grind for investors.
Competition
After decades of being primarily a Northeast phenomenon Dunkin’ (DNKN) has finally gotten into the game on a national level. The result is pricing pressure and a national alternative to the consistency users love with Starbucks. McDonalds (MCD) may not be a beloved fixture in the morning but they’ve been slowly figuring out the process as well. When a company charges $5 for a cup of filtered water there are going to be others trying to get in the game. Starbucks is running out of space to build and there are decent alternatives available.
Succession
Sozzi says that back in January Schultz hinted at a soft-exit plan from the chain. Remember it was Schultz who not only built the chain, he did it twice, coming out of retirement to save the company several years ago. Starbucks is a strong brand but that didn’t keep it from hitting the wall when Schultz retired before and investors are worried about anyone being big enough to fill his shoes.
Baristas
Starbucks gets a lot of good press for how well it treats its employees but Sozzi says he’s getting whiff of revolution along with the aroma of roasted beans. So far the company has offered to help put workers through school. That’s done a lot of mollify the discontent but wage pressures are building in Starbucks' backyard. Seattle recently raised its minimum wage and others may follow its lead. If so that’s going to be a problem on margins.
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