Starbucks: Food for Thought (and Investors)

 | Mar 23, 2014 | 12:00 PM EDT  | Comments
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Stock quotes in this article:

sbux

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cmg

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k

The rumor on the Street is true: On the evening of March 11, our COO at Belus Capital Advisors, Carleton English, met with the executive team of Starbucks (SBUX) in New York City. Along with roughly 14 other securities analysts, this abbreviated and informal event (which Carleton says included yummy pastries) highlighted the amazingness that is today's Starbucks brand. It also sneak-previewed the Starbucks of tomorrow, which, to me, resembles a scaled-down diner (mobile tipping is a bonus to the thesis) with much spiffier d├ęcor and Square checkout terminals recognizing your wearable Apple (AAPL) device (on the face, on the wrist) immediately upon entry.

In terms of new products, Starbucks will be testing an array of new products in coming months in select, top-performing markets. Unfortunately, I can't share precisely what these tests will be, except to say to be on the lookout for fruity, fizzy and cold drinks to be offered via standing chalkboards inside and outside the stores. Furthermore, I believe that later this year Starbucks will announce a stronger push into grocery stores via an entry into refrigerated cooler sections, with certain breakfast items being the initial test. The actual rollout would be in 2015, to help layer a new source of revenue atop higher coffee costs.

Exciting times for Starbucks, for sure. But I am still not ready to issue an upgrade on our Hold rating pending two conditions. First, a little less of a promotional stance at the store level following what amounted to a warning a couple of months back; second, the slightest indication that Starbucks has addressed the operational issues that I continue to detect resulting from the expanding menu (which I call "McDonald's Syndrome") and an influx of new employees.

Regarding these new employees, in recent visits to Starbucks I've noticed them struggling with the payment machine (due to the expanding and more complex menu) and in some instances under-charging for premium drinks to keep the line moving (the employees key in the drink orders that they have memorized).

This really got me thinking about investing and the individual, or retail, investor whom I love to share guidance with every day into the larger accounts. I have begun feeling guilty attending events, like the Starbucks' one, knowing full well that Jane Doe who holds SBUX shares in her 401(k) isn't aware of the meeting (I received a kindly email invitation). And she obviously wasn't privy to the same fun information as our COO (you can learn a ton just by watching executives present, trust me).

So, here are a few words of wisdom from a person trapped between many worlds -- a consensus-recognized stock analyst who has forever gone against the grain while keeping everything above board and honest; an author of columns; a smiley face in assorted videos; and an interviewer of execs for a men's lifestyle magazine.

Sad, but true. Executive teams generally have their top institutional investors in mind. The dialogue is frequent and detailed between them and the big-money folk. You at home -- and it pains me to write this -- are at a disadvantage. I suggest using your financial advisor as a lifeline to a company's executive team for a stock you own or wish to hold in a portfolio; they could easily attain access to management.

Get to know yourself on a deeper level. Start your day with a $5 iced frappe and a La Boulange biscuit from Starbucks, then grab a midday salad bowl with extra guacamole from Chipotle (CMG), after waiting in line forever. End the day with a new chocolate waffle from Kellogg (K). Chances are others are displaying the same habits. These are three publicly traded companies right off the bat. Why focus on habits? Because it means a company could be earning consistent sales and profits. In investing, wondering if a company's sales and profits are consistent is something to visualize mentally in each research undertaking.

Learn the lives, and comments, of execs. Most people sitting atop publicly traded companies have personal Twitter accounts. All companies have Twitter and Facebook pages that generate real-time interaction with users of the brand's products or services. You must be on top of all this social activity, getting to know these individuals and their companies on as close to a personal basis as possible.

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