SBUX TODAY
Today at 12:30 PM ET, we will host a Starbucks Black Book, "DECODING THE BREW: UNVEILING THE STARBUCKS BLACK BOOK FOR 2024." In 2022, Starbucks was at a critical juncture, grappling with internal challenges and external perceptions. But the question arises: Was the company truly facing a breakdown in its business model, or was this narrative strategically amplified to counter the burgeoning union movement?
As the global coffee market continues to percolate with competition and challenges, our upcoming Starbucks Black Book offers an in-depth analysis of the company's strategy for 2024, juxtaposed against the backdrop of management's recent commentary. This comprehensive review delves into the intricate layers of Starbucks' plans, highlighting where our insights diverge from the official narrative of the company's leadership. We will unravel a series of themes from the September 2022 Reinvention Analyst meeting and compare them with the revelations from the company's more recent strategy session. Our analysis is not just a recapitulation of Starbucks' projections but a critical examination of the gaps and inconsistencies in its strategic roadmap. Some of the questions we will try to address or add perspective to:
- How sustainable is Starbucks' growth in its key markets, especially in the U.S. and China? Are there specific strategies in place to maintain or increase market share in these regions?
- What risks and opportunities are associated with Starbucks' aggressive global expansion, particularly in emerging markets? How is the company tailoring its approach to different cultural and economic environments?
- How is Starbucks leveraging digital technology to enhance customer experience and operational efficiency? What are the company's digital initiatives' long-term benefits and potential risks?
- How is Starbucks planning to continue its product and service innovation to meet changing consumer preferences and stay ahead of the competition esp in China?
- How is Starbucks managing its supply chain amid global disruptions, and what steps are being taken to ensure sustainability, ethical sourcing, and reduce costs?
- What are the projections for Starbucks' profitability and financial health in the coming years? How will the reinvention strategy impact the company's margins and overall financial performance?
- How resilient is Starbucks' business model to economic downturns or recessions? What cost management strategies are in place to handle economic fluctuations?
- How is Starbucks addressing the challenges of increased competition and potential market saturation, especially in mature markets, as it accelerated unit growth?
- How is Starbucks managing its labor costs and employee relations, especially considering the increasing focus on wages?
- What is the long-term vision of Starbucks' new CEO, and how does it align with current market trends and future projections?
Longest Gas Price Decline in Over a Year Can Help Restaurant Sales
In summary, falling gas prices over the past two months saved US consumers money, boosted holiday retail and restaurant sales. The declines are expected to continue based on decreasing crude oil prices.
- Gasoline prices in the US have fallen for 60 straight days, the longest decline in over a year. The current national average is 3.25 per gallon, over 0.60 lower than the mid-September peak and 0.30 cheaper than last year.
- Lower pump prices may also boost retail stores during the critical holiday shopping season by putting more cash in consumers' pockets. U.S. consumers spent a record 9.8 billion online on Black Friday.
- Gas prices are expected to keep falling as crude oil prices decrease.
Black Box Commentary
The same-store sales growth of 1.4% in October, similar to August's 1.5%, shows stability in the industry.
In summary, the restaurant industry in October 2023 shows signs of resilience and adaptability, both from consumers and specific segments like limited-service restaurants. However, challenges like softening sales growth, negative traffic growth, and specific struggles in upscale segments are evident. California's wage increase presents challenges and opportunities, impacting employee welfare, brand strategies, and competitive dynamics within the industry.
Positive Themes:
Resilience in Sales and Traffic Performance: The rebound in restaurant sales and traffic in October 2023, as indicated by Black Box GuestXM's Financial Intelligence, is a positive sign. It suggests that the industry seasonality is back in play from the disappointing results in September; the 2-year stack is encouraging as the price improves MoM. Trends suggest don't seem to be heading towards a severe downturn.
Consumer Resilience and Adaptability: Despite economic challenges, consumers show resilience and a desire to maintain some level of restaurant visits and orders. This consumer behavior is crucial for the industry's sustenance and growth. A slight softening in average guest checks, driven by more conservative menu-price increases, is also helping alleviate some financial pressures among consumers.
Performance of Limited-Service Restaurants: Limited-service restaurants outperform full-service segments, including quick service and fast casual. They are among the top in the industry based on both same-store sales and traffic growth. This indicates a shift in consumer preferences and the adaptability of these business models in challenging times.
Negative Themes:
Softening in Sales Growth: The overall softening in sales growth throughout the year, as indicated by comparing average same-store sales growth between April and July 2.8% and October 1.4%, indicates a potential slowdown in the industry's growth momentum. Same-store sales in 2Q23 was 2.7% versus 1.6% in 3Q23 - the 2-year stack decelerated 50bps
Negative Traffic Growth: Despite the resilience in sales, the industry is experiencing negative same-store traffic growth (-2.1% in October). This concern indicates fewer customers are visiting restaurants, which could have long-term implications for the industry. Same-store Traffic in 2Q23 was (-2.7%) versus (-2.9%) in 3Q23 - the 2-year stack decelerated 60bps
Challenges in Upscale Casual and Fine Dining Segments: The negative same-store sales growth in upscale casual and fine dining segments in October highlights the challenges faced by these sectors. This could be due to changing consumer preferences or economic factors affecting spending on higher-end dining experiences. This will be a small heading for DRi when they report earnings on 12/15
