SBUX | DO THE NEW FOOD OFFERINGS DRIVE INCREMENTAL TRAFFIC?

 “Starbucks’ new ‘tapas’ menu is totally disgusting” -NY POST August 20, 2015

While this headline might be a bit of sensationalism, the point is not lost on me.  Starbucks’ food initiative is not a driver of incremental traffic and makes operations more complex while having negative implication for the brand.

We wrote a Hedgeye SHORT SBUX Black Book in January of 2015, and the centerpiece of the short thesis was focused on the food not driving incremental traffic into the stores.  Needless to say the timing was off, but the thesis is still in play with timing being the remaining issue.    

In its quest for growth in its U.S. store base, Starbucks is trying to be all things to all people.  In the end this could be a bad decision for the company.  Starbucks’ aggressive move into serving more food at every day-part will ultimately be disruptive to the operations and the poor quality food will also impact the consumer perception of the brand.

Just like nobody went to McDonald’s for espresso based drinks, nobody is going to Starbucks to eat food wrapped in plastic and heated in a Microwave.  Starbucks’ new food it is serving goes completely against the secular trend consumers are looking for; customizable, all-natural, non-GMO and organic alternatives.  The quality of the Starbucks brands is associated with its hand crafted beverages and that does not automatically extend to the current food offerings. 

In our SBUX Black Book we ran a survey that asked consumers if they like the La Boulange food at Starbucks.  It was clear that consumers did not like the new food. 

SBUX | DO THE NEW FOOD OFFERINGS DRIVE INCREMENTAL TRAFFIC? - CHART 1

We recently ran a new survey that asked. Do you go to Starbucks more often because of the increased food offerings? 

SBUX | DO THE NEW FOOD OFFERINGS DRIVE INCREMENTAL TRAFFIC? - CHART 2

Time will tell where Starbucks’ new food efforts are headed, but we suspect it will not end well.