SBUX - Comments from the Goldman Conference

Coffee war commentary continues - SBUX's CFO Peter Bocian cited the company's current market share: 13%-14% of the brewed coffee market and just north of 50% market share of espresso-based beverages consumed out of the home. When MCD introduced its premium roast coffee in 2006, it received a lot of media attention and SBUX was often named as the company which would be hurt the most from a competitive standpoint. Now, with MCD expanding its coffee lineup to include specialty coffees (espresso-based lattes and cappuccinos), the media is again calling SBUX out as the biggest potential loser. Even before hearing SBUX's respective market share numbers quantified today, I was skeptical that MCD's specialty coffee introduction would substantially impact SBUX's performance going forward. In 2006, MCD entered a market where the market leader had a 13%-14% share position. Today, MCD is trying to tackle a market where the market leader holds more than a 50% share position. I think the numbers speak for themselves, but I can't help adding that the McDonald's product offering is very different from what Starbuck's serves.

More U.S. store closures on the horizon? - Starbucks said back on January 7, 2008 that it would close a number of underperforming U.S. stores as part of its turnaround strategy. The company quantified that number on January 30, 2008, saying it would close around 100 underperforming stores. Today, the company gave its first hint that the 100 number could be going higher when the CFO said he has a watch list for potential stores that may be on the bubble to close. Closing additional stores (beyond the already stated 100 stores) will only accelerate the company's ability to improve store-level operations and U.S. operating margins and will, more immediately, benefit same-store sales.


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