Starbucks has been pushing price increases strategically over the past 20 years or so without denting its popularity. So, as far as investors are concerned, this looks like a good opportunity for getting some extra earnings momentum.
However, there is one factor that warrants a mention, and that is Dunkin Donuts, the flagship chain of Dunkin Brands Group Inc (NASDAQ:DNKN). Dunkin Donuts, which is often known as the poor man’s Starbucks Corporation (NASDAQ:SBUX), has recently made it clear that, with beverages accounting for 57% of its sales, it is going to focus more on coffee.
The chain is going through a makeover phase and has started offering more Starbucks Corporation (NASDAQ:SBUX)-like ambiance. It has also undertaken a big domestic expansion plan where it will increase its store count to 15,000 over the next two decades. So, Dunkin is likely to be more of a threat to Starbucks than it has been in the past. Starbucks will need to factor this in all its present and future pricing decisions.
Increasing food offerings
Food is not just a big opportunity for Starbucks Corporation (NASDAQ:SBUX), it is also its strategy to defend its market share from the likes of McDonald’s Corporation (NYSE:MCD) and Burger King Worldwide Inc (NYSE:BKW), who are rapidly increasing their coffee and other beverage offerings.
The company has recently introduced new salad and sandwich items and pre-packed lunch boxes that are becoming quite popular. It will be introducing new pastries from its recently acquired La Boulange bakery.
Currently, food accounts for 19% of sales mix and one-third of all transactions, and Starbucks is aiming to push this up to around half. This will be quite an opportunity as it will improve the company’s penetration in afternoon and evening day times. It can also divert customers from fast food joints like Yum!, McDonald’s Corporation (NYSE:MCD) and Burger King Worldwide Inc (NYSE:BKW).
Last word
All of Starbucks Corporation (NASDAQ:SBUX)’ strategic initiatives, from its global expansion to price increase to expanding its food menu, tell the story of excellent growth potential. The company justifies its premium valuation through its bright future prospects and investors would continue to see upsides with this stock.
The article What Is This Coffee Giant up to Now? originally appeared on Fool.com and is written by Eshna De.
Eshna De has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks Corporation (NASDAQ:SBUX). Eshna is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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