Unscrambling Monday's Egg

2. Keep It Simple Sistah (KISS)
The toughest thing about Starbucks is probably trying to figure out what to order! Their menu is vast and, granted, their cup size names may be a bit confusing, but don't you feel oh-so transcontinental when you vascillate between a grande and a venti mocha?
Primarily,Starbucks sells coffee and tea products, pastries and other food items, coffee related accessories and equipment (I've also bought a few great gifts there!). Through joint ventures, it also produces and sells bottled Frappuccino and a line of premium ice creams (their awesome!).
Although you'll see a Starbucks in a variety of locales (from a supermarket foyer to a suburban retail center), its main focus is to have stores that are convenient to pedestrian street traffic with high visibility. (thus you don't see many at your local mall)

If you're curious as to how those retail stores bring in their money by product, here's the breakdown... (fiscal '99 sales figures)
69%.....those yummy handcrafted beverages
15%.....food items
10%.....whole bean coffees
6%.....coffee-making equipment and accessories

3. Industry
Their industry is Food Processing and their sector is Consumer/Non-cyclical. I'd say they're non-cyclical, I drink coffee, rain or shine, 365 days a year! As a consumer, I really can't think of anything that directly competes with Starbucks. Of course, there are plenty of companies in the Food Processing industry, but none in the coffee niche as well known across the country as Starbucks. I think they may even give Folger's and Maxwell House a run for their money...on a recent family vacation in Palm Springs, my brother (flying out from Arkansas) requested I go to Costco (a club store like Sam's) and pick up a 2 pound bag of Starbucks whole beans. He just couldn't go the week without it! Thanks to a long term licensing agreement with Kraft foods, as of fiscal year 1999, Starbucks whole bean and ground coffees could be found in 15 states and approximately 8500 grocery, warehouse club and mass merchandise stores. (Kraft handles the distribution, marketing, advertising and promotions). It is expected to have national distribution by the end of this year.

4. Leader In Its Field
My girlfriend called me the other day to get together. "What do you want to do", I asked? "I don't know, meet for a Starbucks or something". That is huge! Do we no longer say meet for a cup of coffee? Slowly, it seems, Starbucks and coffee are becoming synonymous. Just ask Kleenex and Xerox the value of this kind of brand recognition.

The Company's self-proclaimed objective is "to establish Starbucks as the most recognized and respected brand in the world." Oh how I love a company with lofty goals! (Remember Tim Koogle's goal for Yahoo is for it to be the preeminent media company of the 21st century.)
Their strategy makes good Chick sense. They want to sell the finest quality coffee and related products, provide superior customer service, creating strong customer loyalty. They plan to expand its retail business to increase its market share in existing markets, then open stores in new markets where they feel they can be the leading specialty coffee retailer.

5. Repeat Profitability
You better believe it! We're not talking car buying here, its coffee! Some people can't even get out of bed without smelling the aroma of a freshly brewed pot. As for our family, we can't make it home from church with out stopping to buy a couple mochas to go...the real beauty? We have 4 retail outlets to chose from, depending on which shop has the shortest line!

Note: The following equations used figures from the quarterly statements (7/00) found at www.marketguide.com. More recent earnings have been announced, but as of yet, the figures are unavailable.

5. Gross Margin: 23%

(Sales - Cost of Goods Sold) / Sales

(555.5 - 426.6) / 555.5

128.9 / 555.5 = .232

.232 x 100 = 23%