Investor Outlook: Starbuck's Digital Innovations

Starbucks Nasdaq: (SBUX) Digital innovation efforts have been in place to capitalize on consumer behavior toward the company’s strong worldwide growth. There is no doubt that Starbucks’ digital initiatives and innovations are aimed to gain present consumer demands within the growing market. SBUX stock range is $56.65 to $57.49. Shares are up 5.4 percent year to date. As of March 5, 2013, (SBUX) was up $0.70 (1.2 percent) to $57.20 on average volume. 3.7 million shares of Starbucks exchanged hands compared with its average daily volume of 6.0 million shares. There are 9,405 company-operated stores and 8,661 licensed stores. Starbucks’ market cap is $40.72 billion.


Starbucks is a well-positioned company that could take advantage of its core markets this year. Starbucks’ close competitors include other specialty coffee shops, doughnut shops, and restaurants. Starbucks holds a dominant position in the specialty coffeehouse market and has no single clear rival in the sector.

Competition
Dunkin’ Donuts (DNKN) is up 28.62 percent over the last year versus S&P 500 total return up 17.12 percent. Dunkin’ forecasts minimal same store sales growth of 3 to 4 percent for 2013. Overall revenues are expected to rise about 7 percent, and adjusted operating income is predicted to be up at about 11 percent. In 2013, it will add 330 to 360 restaurants across the United States.

Starbucks is at the frontier, and the company has been accepting mobile payments through its app since 2011. In 2012, Dunkin’ Donuts added The Dunkin’ App to its mobile commerce to Apple’s Passbook. Consumers can scan Dunkin’ Pass in-store or at the drive-thru. The company competes by leveraging new levels of speed and convenience for customers. Within six months of its launch last year, the app has seen over a million downloads.

McDonald’s Corporation (MCD) McDonald’s larger retail footprint may overlap more with Starbucks’ core markets, but their stark differences as stores are reflective of the general differences between their core customers. McDonald’s is at a $1.29 gain (+1.3 percent) bringing the stock to $103.28. Volume for McDonald’s Corporation currently sits at 2.4 million shares traded versus an average daily trading volume of 4.9 million shares. McDonald’s Corporation has a market cap of $101.77 billion. Shares are up 15.6 percent year to date. The stock’s dividend yield sits at 3 percent.

McDonald’s does lead Starbucks in social engagement initiatives. Competition heats up in where it leads to other online initiatives such as through McDonald’s renovation effort of free Wi-Fi. McDonald’s has 12,000 Wi-Fi-equipped locations in the United States, and Starbucks has another 7,000. Chief Executive Howard Schultz is still confident the chain can navigate its latest challenges and step up competition from lower-priced competitors.

Starbucks customers returned for the company $1 billion in profits on loyalty cards over the 2012 holiday season. The revenue growth for 2012 came in higher than the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 10.6 percent. This growth in revenue appears to have trickled down to the company’s bottom line, improving the earnings per share by 14.0 percent. Positive earnings per share growth have been consistent over the past two years. 2012 was the ninth year in 10 that Starbucks has posted higher sales and profits.

Starbucks Innovates
Innovation is a key driver. Starbucks recently announced for 2013 the launch of espresso beverage, Hazelnut Macchiato. Its Tribute Blend line of beverages will now be available in K-Cup packs. The strong Starbucks’ product portfolio consists of innovations in at-home coffee, refreshment, health and wellness tea, and enhancing core food offerings. Other new product offerings include Blonde Roast coffee, Verismo-at-home coffee machine, La Boulange bakery items, Evolution Fresh juices, and Starbucks Refreshers energy drinks

Starbucks acquired Teavana in December 2012. The company operates online, mall-based stores and does not have a beverage business. Starbucks plans to develop Teavana neighborhood stores and open tea bars by the end of 2013. Starbucks expects to add over 30 new Teavana stores. Although acquisitions play an important role to growth with companies, including Seattle’s Best Coffee, growth for Starbucks has been mainly organic.

Digital Expansion
The company has put great focus in expanding within its digital space, creating Starbucks experiences to leverage social media platforms such as Facebook, Twitter, Instagram, My Starbucks Idea, and the in-store Starbucks Digital Network. The company has been able to successfully bridge the off- and online experiences. And the payoffs are there. Starbucks mobile app currently has generated 45 million mobile payment transactions over the past 14 months, and the company now the largest mobile payment program for retail in North America. “Mobile payments will total $171.5 billion by the end of the year up 62 percent from last year’s total,” via Gartner.

2013 Investor Outlook
Starbucks is a popular and customer favorite. Privately owned Dunkin’ Donuts is another major competitor, with nearly 5,000 stores in the United States. Although Dunkin’ Donuts’ retail footprint also overlaps largely with that of Starbucks’, their customer experience cannot compare to Starbucks’. Consequently, they are likely to compete more directly with McDonald’s than with Starbucks. Dunkin’ Donuts’ U.S. operations contribute growth and is aggressively expanding.

Investors should be pay attention in 2013 to the company’s growth strategy outlook, innovations, and listen. Innovation is set to drive both top- and bottom-line growth. Starbucks seeks to maintain its dominance in the United States and global coffee market. Investors forecast innovation to Starbuck’s product portfolio. Products such as Verismo suggests per-share earnings to reach 10 percent or more. Coffee is a $5.6 billion industry in the United States. Current changes in consumer behavior and market factors will continue to have an impact on retail companies, particularly consumer brands. Starbucks will have to continue to personalize its initiatives to meet the needs of its consumer market, being adaptable in such demands and slow market growth factors.