Starbucks Has Something Cold Brewing

Proprietary Data Insights

Top Restaurant Stock Searches This Month

RankNameSearches
#1Starbucks23,590
#2Chipotle Mexican Grill18,845
#3McDonald’s16,280
#4Jack in the Box5,577
#5Domino’s Pizza4,297

Can You Make That Iced, Please?

It’s no surprise Starbucks (SBUX) percolated to the top of most searched for restaurant stocks among investors in our proprietary Trackstar database. 

Despite economic headwinds hitting McDonald’s (MCD) and Chipotle (CMG), Starbucks continues to crush it. The Juice thinks we know why. Because the company flat out owns Generation Z. 

We explain in a minute, but first some of the key numbers from last week’s earnings report. 

Screw China

If we told you a restaurant – or any company for that matter – experienced a 44% decline in Chinese same-store sales, you’d logically think it would have wrecked their entire quarter. 

Not at Starbucks. 

Take away China and Starbucks grew double digits in each of its international markets. In the US, same-store sales were up 9%. Revenue hit a record $8.2 billion in the quarter. 

Low Risk, High Reward?

In April, The Juice told you all about Starbucks’ innovative mobile and digital platform, particularly its app, which focuses on order/pay ahead and a lucrative rewards program. 

This is where the story begins with respect to the company’s foothold on young and otherwise tech savvy consumers. 

In the most recent quarter, Starbucks added 3.2 million rewards members, up 13% year-over-year, for a total of 27.4 million. 

Dig something pretty incredible from the company’s earnings call:

Our loyal Starbucks Rewards members drove a record 53% of US company-operated revenue. Mobile Order & Pay, drive-thru, and delivery also remained quite strong, driving 72% of our US revenue.

And this is only the beginning. Starbucks has additional plans for its app that’ll only strengthen its foothold on Gen Z.

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Mobile and Digital

Starbucks Has Something Cold Brewing

Key Takeaways:

  • Cold beverages drive Starbucks’ US sales.
  • But not just because they’re cold. 
  • They explain much of what you need to know about Starbucks’ relationship with its Generation Z fanbase. 

 

Let’s piece together the most interesting part of the Starbucks’ story now and going forward. 

  • Cold beverages comprised 75% of US sales in the quarter. 

And not just because it has been hot outside. 

It’s because you can see the contents of the drink. And these contents are decreasingly a drab coffee color. More frequently, they’re vivid and flamboyant colors with lots of foam and whipped cream. Or maybe a shaken espresso with chocolate sauce lining the inside and bottom of the cup. 

The key to these drinks: You can customize them. And they’re Instagramable. 

Consider what SBUX CEO Howard Schultz said on the aforementioned call: 

And why we highlighted cold beverages so much was two reasons. One is that is a Gen Z product… Secondarily, we have a significant competitive advantage in our ability to customize almost any beverage that our customers want with speed… The modifiers are raising the ticket and the modifiers produce color and excitement to this Gen Z audience and they immediately put it on social media. But we’re in the early stages of the cold beverage platform in terms of what we’re going to bring in terms of innovation and the modifiers and the customization gives us a significant competitive advantage

For a (relatively) old guy, he gets it. Or, like a good CEO, he listens to people who do. 

What The NFT?

Playing to this Gen Z audience, Starbucks plans to introduce an NFT (non-fungible token) platform to its app this year. 

All this means is rewards members will have access to customizable (there’s that work again) digital art collectibles. 

Starbucks says these NFTs will initially be “based on coffee art and storytelling.” But they won’t be designed to be speculatively traded. Instead, they’ll provide “community members” with “access to exclusive experiences and perks.” 

Can it get any more Gen Z – or young millennial – than that? 

The Bottom Line: Starbucks stock has fought back – and then some – from its lows earlier this year. The Juice thinks this is, in part, because investors realize loyal brands tend to win during times of economic hardship, such as high inflation. 

If we’re really living in a world haves and have nots, with large swaths of the population turning to credit card debt to get by, Starbucks, interestingly, might 

To this end, consider something else Schultz said last week:

Well, let’s try and unpack the question about Starbucks as an affordable luxury and possibility of a significant slowdown economically in the country. Historically, 51 years in business, we have been able to navigate and manage through very difficult economic headwinds. And although we’ve raised prices roughly about 5% or so over the last 12 months, the fact that our customers continue to see Starbucks not only as a great product and a great experience, but all the things that ladder up to the equity of the brand and the quality of the coffee.

An affordable luxury. 

Smart guy, indeed. 

The Juice loves this narrative. We think it’s more than intact. Therefore, it might make sense to consider SBUX, particularly if you’re a long-term investor who might not be into, but can see the appeal of the gamification of absolutely everything.

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