Starbucks is losing its coolness. On Wall Street, that is, where its shares have been heading south in recent months, bucking the market trend.
In the last three months, Starbucks&a;rsquo; stock is down 11.38%, while the overall market is up 4.10%.
What&a;rsquo;s haunting Starbucks stock?
A number of problems at home and abroad. At home, Starbucks is facing market saturation, as there&a;rsquo;s a Starbucks store or two in almost every neighborhood. &l;span&g;&a;nbsp;&l;/span&g;This means that there are no more opportunities to open new stores.
With market saturation comes store cannibalization, a situation where one company store takes away business from other stores.
Market saturation and store cannibalization can explain the company&a;rsquo;s sluggish same store sales in the U.S., which has forced Starbucks to announce store closings in recent weeks.
Then there&a;rsquo;s Starbucks&a;rsquo; loss of identity. &l;span&g;For years,&a;nbsp;&l;/span&g;the company&l;span&g;&a;nbsp;has been known as a &q;third place,&q; an &q;affordable luxury&q; where middle-age baby boomers could share and enjoy a cup of coffee with friends and colleagues, away from work and home.&l;/span&g;
&l;span&g;In recent years, however, Starbucks has been attracting bigger and bigger crowds, from all walks of life, including families with young children.&l;/span&g;
&l;span&g;&l;/span&g;
&l;span&g;This means that Starbucks is turning from a cool &q;third place&q; to another routine &a;ldquo;first place.&q;&l;/span&g;
&l;/p&g;&l;div class=&q;table-wrapper&q;&g;&l;table&g;&l;tbody&g;&l;tr&g;&l;td width=&q;208&q;&g;Company/Index&l;/td&g; &l;td width=&q;208&q;&g;3-month performance&l;/td&g; &l;td width=&q;208&q;&g;5-year performance&l;/td&g; &l;/tr&g;&l;tr&g;&l;td width=&q;208&q;&g;Starbucks&l;/td&g; &l;td width=&q;208&q;&g;-11.38%&l;/td&g; &l;td width=&q;208&q;&g;55.57%&l;/td&g; &l;/tr&g;&l;tr&g;&l;td width=&q;208&q;&g;Dunkin Brands&l;/td&g; &l;td width=&q;208&q;&g;16.46&l;/td&g; &l;td width=&q;208&q;&g;49.62&l;/td&g; &l;/tr&g;&l;tr&g;&l;td width=&q;208&q;&g;S&a;amp;P 500&l;/td&g; &l;td width=&q;208&q;&g;4.10&l;/td&g; &l;td width=&q;208&q;&g;68.24&l;/td&g; &l;/tr&g;&l;/tbody&g;&l;/table&g;&l;/div&g;
Source: Finance.yahoo.com 6/25/2018
Meanwhile, there&a;rsquo;s competition at home and abroad from both established and upstart companies.
For years,&a;nbsp;Starbucks&a;nbsp;had little competition both at home and abroad. For a simple reason: competitors couldn&a;rsquo;t match its business model. Some replicated the company&a;rsquo;s espresso beverage&a;nbsp;menu -- like&a;nbsp;McDonald&s;s with its McCafe product line. Others copied its &q;third place&q;&a;nbsp;concept -- like&a;nbsp;Costa Cafe in London and Caffe Bene in New York City.
But none of these competitors succeeded in developing a business model that beats Starbucks in all four advantages: beverage, store setting, service, and culture.
With little competition, Starbucks sales soared. Back in 2015, for instance, Starbucks&a;rsquo; revenues and earnings grew at the high teens levels, as McDonald&a;rsquo;s revenues and earnings headed south.
That was music in the ears of momentum investors who fell in love with the stock.
But in recent years, things have changed, both at home and abroad. At home, Starbucks is facing growing competition from McDonald&a;rsquo;s McCafes and all-day breakfast, as evidenced by the recent turnaround in McDonald&a;rsquo;s sales. Overseas, Starbucks is facing strong competition from home-grown start-ups that have managed to match and even exceed Starbucks &a;ldquo;third place&a;rdquo; model.
Like Greece-based Mikel Coffee Company, which features a portfolio of 130 beverages &a;mdash; and an elegantly designed &a;ldquo;third place&a;rdquo;&a;nbsp;look,&a;nbsp;staffed by carefully recruited and well-trained and dedicated associates.
That&s;s how Mikel expanded like&a;nbsp;wildfire in Greece, the Middle-East and the U.K., opening up 185 stores in nine years, with plans to open more stores in Egypt, Saudi Arabia, Germany and the U.S.
The bottom line: Starbucks&a;rsquo; long bull run is over, as the company turns from a growth to a value play.
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