This month Starbucks (SBUX) celebrated the 40th anniversary since Howard Schulz started with a packed coffee store in Seattle. That coffee store has since grown into a manifestation of the American Dream. Howard Schulz is now running for the Presidency with thousands of coffee stores across the globe.

The company exceeded revenues of $10.7 billion last year. They have 16,850 Starbucks in 40 countries. They own one of the world’s most well-recognized brands – so much that they opt to not put their name on their cups. 

investors watch starbucks locations to other retail portfolio companies for consumer goods

They’ve added an average of two stores each day since 1987. This has allowed them to grow to 137,000 employees. That’s a workforce twice the population of Greenland, which President Trump attempted to purchase last week. Greenland isn’t for sale, and sadly for the President, Starbucks market cap of $109 Billion puts it a little out of his price range.

REDEFINING COFFEE

Starbucks went public in 1992 with its initial public offering (IPO) at $17 per share. When adjusted for splits, that would be $0.27 per share. For $1,000, you could have bought 3700 shares in Starbucks (SBUX) in 1992. That would be worth ~$224,777 today. That’s about 27% per year.

You have to sell a lot of coffee to grow at 27% a year for over a quarter of a century. In fact, you have to do a lot more than sell a lot of coffee. Starbucks had to detach themselves from all existing associations of coffee shops in order to achieve their success.

For the first 4 years of Starbucks existence, they did not sell donuts in the store. Even today, they continue to offer more upscale dining options. This makes grabbing a Starbucks an event, rather than a transaction. 

For more on how Starbucks uses price discrimination to maximize profit: check out this article. 

ITS’ GREATEST ASSET? AN APP…

Starbucks does a lot more than coffee. It’s their constant innovation that has allowed them to achieve sustained success. There’s no better example of this than the Starbucks App when accounts for 30% of all company sales.

investors see starbucks as a tech stock as they learn to increase mobile sales

For those not familiar, the Starbucks app (launched September 2009) provides personalized content, promotions, and producing a gamification from the daily routine of grabbing a coffee on the way to work. Now Starbucks App users order in advance by linking credit cards and earn stars. The stars redeem additional products similar to airline miles. The app has even gone as far as integrating with Spotify to provide songs playing in Starbucks stores directly to a user’s phone.

Today, Starbucks had 23.4 million unique app users purchase a product in 2018, dwarfing Apple Pay (22 million), Google Play (11 million), and Samsung Pay (10 million). Those users average 5 purchases per month in the US.

According to a 2016 MarketWatch report, Starbucks had $1.2 billion loaded onto Starbucks cards and its app as of the first quarter of 2016. At the time, this was larger than the deposits at California Republic Bancorp ($1.01 billion), Mercantile Bank Corp. ($680 million) and Discover Financial Services ($470 million).

investors love starbucks stock because their mobile payment is better than apple google or samsung pay

BOTTOM LINE:

The account balances loaded onto Starbucks cards are enormous. Starbucks’ mobile payment system through a first-party app continues to dwarf in-store sales. They continue to adapt – whether it be with a mobile app, adding wireless charging ports, or closing 8,000 stores for employees to take compulsory anti-racial bias training.

With that said, any payment system can be hacked & accounts can be compromised. So while we’re all “addicted” to coffee, that addiction comes at a cost. That cost serves as an interesting example of the growing risks & uncertainties that companies (and shareholders) assume by meeting their customers technological demands. Even when they are successful at meeting those demands.

P.S. Try to pick up a latte in Cairo if you’re traveling. Also it might make sense to bring your own French press if you’re craving caffeine in Zurich.

coffee prices where its basically free in Cairo compared to Zurich

In case you missed it, check out our recent post about The Big Four: Dominating The Stock Market.

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