Shares of coffee firm Starbucks (SBUX) are down 16% year to date following one of its worst quarterly misses. Consumers have continued to speak with their wallets amid inflation, and right now, they’re not willing to pay more than $6 for a coffee beverage, no matter how fancy it is. Although Starbucks has a turnaround plan to re-caffeinate its share price, it’s hard to say whether the firm can execute its game plan under a CEO who’s not named Howard Schultz. Nonetheless, while it’s easy to give up on SBUX stock after a venti-sized sell-off, I’m staying bullish, as I believe in the power of the legendary brand.
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Starbucks Feeling the Force of Industry Headwinds
Undoubtedly, it’s not just Starbucks that’s been up against it over the last two years. Your average restaurant stock has been dragging its feet amid inflation and changes in consumer eating habits. Still, with the prices of certain groceries coming down recently, especially at the local Walmart (WMT) shopping center, the cost savings to be had from eating in as opposed to eating out seem to have risen.
However, with various quick-serve restaurants (QSR), Starbucks included, offering generous promos, combos, deals, freebies, and value menus for the summer season, look for the savings gap to narrow with time.
Additionally, it’s not hard to imagine that people will eventually get tired of eating the “same old, same old” home-cooked food. Not to mention that Starbucks is the ultimate “third space” for people to go out and be in the company of others. Arguably, the Starbucks coffee shop ambiance is as much of a draw of consumers as the tasty beverages are.
A New Store Framework Could Make All the Difference
As part of Starbucks’ turnaround efforts, the firm aims to improve its in-store store layout. The new store layout will not only be more accessible and convenient for customers living with disabilities but also make good use of enhanced lighting and sound systems.
Overlook optimal lighting and stellar acoustics, if you will, but these factors are all the difference between a fantastic in-store experience and a mediocre one. By making the in-store experience more comfortable and accessible, perhaps Starbucks is taking the “third space” ball and running with it into the endzone.
The company plans to make all of its corporate stores follow the new store model. And though the new and improved in-store experience may not lead to huge crowds overnight, I view such efforts as a great way to jolt customer loyalty while beckoning old customers it may have lost in recent years. Crafting a more welcoming environment is just one way that Starbucks hopes to revamp sales growth.
The coffee juggernaut also hopes to improve service efficiencies to shorten order wait times and lines within its stores. Indeed, sometimes, those visually lengthy lines may lead to customers taking their business elsewhere.
Getting more loyal customers to use the Starbucks app to order is one way the coffee giant can remove friction from the ordering process. Readying Starbucks stores for rush hours and training baristas to “use simplified, more intuitive steps” in beverage creation are other efforts Starbucks is shooting toward. And, of course, over the extremely long term, introducing more automation and robotics behind the counters could be a big target to shoot for.
Can Starbucks’ CEO Actually Deliver?
The firm has a good strategic plan to work with, but only time will tell if its current CEO, Laxman Narasimhan, can execute it effectively.
Thus far, he hasn’t yet proven himself as an effective leader of Starbucks. In fact, it’s arguable that he’s one more terrible quarter away from being shown the door. Either way, Starbucks’ problems seem more than solvable, whether it’s Mr. Narasimhan or someone else (maybe Howard Schultz) at the helm by year’s end.
As Starbucks improves upon the in-store experience, it’s also looking to save $3 billion in three years (as of November 2023) as it moves forward with its efficiency program, $1 billion of which will come in the form of optimized store formats.
Is Starbucks Stock a Buy, According to Analysts?
On TipRanks, SBUX stock comes in as a Moderate Buy. Out of 27 analyst ratings, there are nine Buys, 18 Hold recommendations. The average SBUX stock price target is $88.29, implying upside potential of 11.8%. Analyst price targets range from a low of $75.00 per share to a high of $112.00 per share.
The Bottom Line on Starbucks
QSR industry headwinds seem transitory and short-lived. As they pass, Starbucks may finally have the means to put some sort of bottom in. However, industry headwinds are just part of the problem.
Fortunately, Starbucks plans to tackle the shortcomings of its old store layout as it seeks to make things more efficient. With a new store framework to work on, the company stands to make its stores “warmer” and more welcoming, as well as faster and more efficient. Though CEO Laxman Narasimhan is playing from behind, he still has time to prove that he’s the right man for the corner office.
Lastly, the brand’s strong customer loyalty and status as a “third space” make it a formidable player in the market. Despite the current challenges, the enduring attraction of the Starbucks brand provides a solid foundation for potential recovery and long-term growth.
