Did Starbucks (SBUX) get a take-out? Did a giant multinational company bid for the chain?
No, but it sure looks like it as the spectacular run-up rally leading into Thursday night's blow out was only outdone by the one day climb of eight bucks after the sharply better than expected numbers. It was a tour de force giant step for a senior growth company that tops almost any that I can recall.
What happened here? And what does it portend for the Starbucks and the industry as a whole?
To understand how the stock of this 48-year-old $120 billion company could act like this you have to go back to 2018 and the quarter that was just lapped by Thursday's release.
By all admission Starbucks reported a suboptimal quarter back then with a same store sales number of 1% - almost moribund - and China, the big growth market, down an astounding 2%.
These were the kinds of numbers that seemed to mark the end of a once tremendous growth company. I know while we are basking in the glow of a 7% same store sales comp just reported, it is hard to think back to what the sentiment on the stock was at that moment. But I recall it well. I had just done a Mad Money shoot at a Bluestone Lane with its irrepressible founder and CEO Nicholas Stone. We shot the segment at a recent opening of a gorgeous store on the upper east side, in commemoration of their fifth year in the coffee business.
Nick and I spent a lot of time talking about analogies between the old time declining big beer behemoths versus the fast growing craft beers, and Starbucks versus Bluestone. The interview was a combination of a high-five chest-bumping affair for craft coffee and a funeral dirge for Starbucks.
But someone forgot to tell Starbucks and its then-rookie CEO Kevin Johnson, late of Juniper, a tech company no less, that he and his 400,000 person chain with 30,000 plus stores worldwide, were relics, dinosaurs, beaten by swifter, more nimble and, let's face it, cooler opponents like Bluestone and other craft challengers.
At the exact same time that Starbucks was supposed to be dead and buried, Johnson was making moves under the rubric of "Growth at Scale," that would create the breathtaking figures we just saw last week.
First, and most important, Johnson was and is his own man. You can't envy anyone coming in after the founder, Howard Schultz, retired. Schultz is a revered figure. Who knew how the minions would respond to the quiet, low key almost anonymous successor, especially one that's from tech, not from coffee? Doesn't that play right into the hands of the Nick Stones, the passionate proselytizer of non-manufactured coffee?
But Johnson had a few cards up his sleeve that no one thought about at the time. In the spring of 2018 he off-loaded his consumer packaged goods business to Nestle's for $7.15 billion and then took the proceeds and announced one of the biggest, most aggressive, buybacks I have ever seen. When he reported those not-so-hot sales in July of last year he unleashed that buyback like a grim bear reaper. The stock was so heavy after those disappointing numbers that I marveled how much was for sale and how any buyback wouldn't be overwhelmed by the supply.
But Johnson didn't care. You know why? Because he was hatching a comeback based on technology and convenience, his strong suits. Johnson recognized that if he improved on digital ordering, if he figured out throughput and he solved delivery all at the same time as introduced new products during other dayparts, like special iced coffees and Nitro, a true savior, he could accelerate numbers regardless of what the Nick Stones of the world did.
I know many doubted Johnson. I didn't because I loved him at Juniper and he had explained to me that the real issues at Starbucks had to do with making Starbucks more convenient and hospitable whether through mobile, or delivery or store visits - both here and in China. The small players, the Bluestones? They can't compete in any of those realms.
It all came together - crisp delivery, better throughput, faster lines, all with the same personalization we're used to. You can contribute two of that 7% comp to digitization. Plus, the addition of Nitro and iced coffees reignited the sleepy afternoon daypart, bringing in more guests year over year.
Oh, and Bluestone? I think there's enough room for both Bluestone and Starbucks...and everyone else in the coffee business for that matter. The craft issue was always a false dichotomy. Starbucks needed technology to get a seven-fold improvement in comps in one year. So who better than to give you that technology than one of the premier technologists of our generation, CEO Kevin Johnson.