As the nearby, Yahoo-sourced five-year price chart for Starbucks, McDonald's and the S&P500 Index illustrates, Schultz had better hope it delivers something big for his shareholders.I've written at least six labeled posts about the company, and probably a few more prior to those. My most significant recent piece was this one, in January, regarding the marketing battle heating up between Starbucks and McDonalds, with Dunkin Donuts also in the mix.
Perhaps the most amazing comment Schultz uttered in the rather surreal interview this morning on CNBC was, in response to Bartiromo's question about McDonald's,
'Competition- they're just noise,'
or words very close to those.
Well, as I noted in this post, regarding Schultz's recent, hand-picked strategist, Michelle Gass, contended,"She says she hasn't been focused on competitors in developing the new plans. "I think we'd all readily admit that a lot of the situation we're in is self-induced."
Sounds familiar, right? At least Gass and Schultz are reading from the same page in the same playbook.
But in that prior post, I went on to note,
"Thus, I find Ms. Gass' comment to be dangerously short-sighted and internally-focused.
Instead, she might wake up to the reality of Schumpeterian dynamics. Between Starbucks' own prior expansion into lower-income segments, and McDonalds' search for growth in kindred products, the former's market dominance was almost certainly going to come to an end, one way or another.
As it is, Starbucks is being bracketed by another coffee retailer on one side, and a fast-food giant on the other. This has less to do with Starbucks' 'self-induced' troubles than it does with recent targeting of the coffee giant's business by two very large, savvy food retailers.
I hope, for Howard Schultz' and Starbucks' sake, that Ms. Gass begins to become aware of this reality."
While McDonalds has not, historically, been a competitor of Starbucks, it is now. Looking at the three Yahoo-sourced charts in this post- the five-year, two-year and one-year timeframes of Starbucks', McDonalds', and the S&P's price performances- it's clear that the fast food giant has been resurgent for the entire five year period just past.
Starbucks peaked two years ago, and is now struggling to find a way to rekindle its total return performance. Viewing the two firms' looming battle, and now learning that Schultz' latest weapon is a simple, brewed cup of coffee, I really wonder if Starbucks 'gets it.'
They are in the fight of their lives. They no longer own the premium coffee product/market. At least with espresso-based coffees, they had a lot of room to innovate and maneuver.
But brewed coffee? Lower priced, I would guess. And how long will it take Dunkin Donuts or McDonald's to emulate the new flavor, if it's warranted? Dunkin already wins taste tests with its signature coffee.
The shorter time period charts show Starbucks losing 50% of its price over two years, and 40% in just the past twelve months.In contrast, McDonalds has racked up more than 20% in price appreciation, while the S&P was slightly negative.
My point is not that Schultz and Starbucks have to perform exactly like McDonald's, but that the latter is newly-focused and on a roll, with upscale coffee targeted as one of several important new product/markets.
The end of Bartiromo's interview with Schultz saw him fumbling to handle her question about how investors should view his new brewed coffee initiative. He spat out some tired lines about returning to the firm's roots and values while pursuing international growth, all calculated to
'Return Starbucks to its traditional place in this segment,'
or something close to that statement, which is not an exact quote.
It seems, per my prior posts, that Schultz and his chief strategy lieutenant, Gass, think that all of their company's troubles have been simply a matter of self-inflicted loss of focus and failure to refresh their brand.
In fact, again, per my prior pieces on Starbucks, the truth is more complicated than that. McDonalds is certainly much more dangerous than 'just some noise.'
So is Dunkin Donuts. Starbucks' most recent target segment, lower socio-economic groups, are currently hurting economically. The firm's success has attracted two large, capable competitors.
Are we to believe that one brewed coffee blend is going to reverse a 40% slide in the firm's stock price? With two hungry competitors active in the same market?
I think it's fair to say that the bloom is long off Starbucks' rose.
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