Inflation, Competition, and Overexpansion

Starbucks (NASDAQ: SBUX) has faced numerous issues, including inflation, competition, overexpansion, and labor disputes, leading to declining stock performance and customer dissatisfaction. The company struggles with high costs and long wait times, further driving customers to competitors like Dunkin’. Starbucks’ resistance to unionization and frequent leadership changes add to its instability. Additionally, potential moves towards automation may worsen public perception and employee treatment.

A Better Choice

Starbucks has been very unkind to investors the last five years. Shares have declined nearly 20%, while hot AI stocks like META (Nasdaq: META) have risen 150%, or more. With inflation continuing to eat in to consumer’s wallets, while tech goes wild buying chips and ramping up for the AI war, make sure you position yourself to profit from this tsunami of cash.

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Transcript:

So Lee and I have a list of companies that we hate for a variety of reasons.

Some are badly managed. Some are probably going to go out of business.

We’re going to go to Starbucks.

Starbucks’ stock is in the doldrums.

Look, it was a true growth stock, though.

It was.

For many, many years.

And was a true growth company.

I mean, added thousands and thousands of stores, got into China.

Two things have happened to it that I know of. You may have others.

The first one is, like many of the other fast foodie kind of places, inflation hit fast.

Their cost of goods sold, they’re trying to pass that on to the consumer and the consumer say, I’ll make my coffee at home.

Or I’ll go to a competitor.

Or I’ll go to a competitor where it costs less.

Well, you know, back on the East Coast where you live, Dunkin’ is huge.

Massive.

If not as big, if not bigger than Starbucks.

And so I think a lot of people, from a colloquial standpoint, they’d just as soon go there anyway.

It’s massive, and in taste tests, their coffee does better.

It is better because they don’t over-roast it.

Another thing that Starbucks did is they set their stores up so that now that people can order with their card and come pick it up, in the mornings, there are these huge traffic jams.

And anecdotally, people come to Starbucks and wait 30 or 40 minutes to get their food and their drink.

Now, that is an example.

You and I know this.

The first day of Harvard Business School, they say to you, if you lose a customer because they’re PO’d, you never get them back.

Don’t even try. They’re gone.

What else is wrong with Starbucks?

Why else do you hate it?

Well, they’ve been criticized in a big way over their pushback against union organization from the baristas and other people that work there.

And they even had some lawsuits put against them.

I think there’s a federal lawsuit where they’re looking at that.

So I think that’s a big negative for the company.

And plus they shuffle in Howard Schultz every three or four years when things going down the drain.

And it’s like, so you’re going to bring Sergeant Schultz back again for CEO trip number three or four or whatever it is.

So there’s no continuity in the C-suite whatsoever.

And lastly, like you said, I think that people are tired of these Starbucks experience with snooty people working in there.

And, you know, I think it’s lost its allure that it had in 1998 and 2000 in the early aughts.

The other reason I really hate the companies is they overbuilt.

I think the thing that people don’t understand is if you’re in something like the fast food industry, there is such a thing as oversaturating a market.

If I’m an investor and the guy at Starbucks says we have 34,000 stores and next year we’re going to have 44,000 stores, I sell the stock the next minute.

Absolutely.

You need to understand something. It’s OK with us if you don’t grow as fast.

If you don’t have stores that are literally, you know, kitty corner from one another, you’re cannibalizing them.

And all of a sudden, you know, your revenue falls off a cliff because people are upset.

You’ve got to pay more money for people.

You’ve got to pay more money for stores.

It’s like Starbucks. Please don’t overbill.

If you’re not there right now in places like New York City, you’re right around the corner from them.

Oh, absolutely.

And, you know, they’re not the first corporate entity that’s been guilty of this.

I mean, look at what has happened to Walgreens, you know, which is a solid business, but they way overbilled.

And the banks did it. Bank of America did it.

So, I mean, you don’t need a branch on every corner and you don’t need a Starbucks on every corner either.

Well, one of the things that could happen at Starbucks, maybe it would make me hate it even more, is with AI-driven robots and automation, it may be that they get rid of the baristas.

I think those people are treated badly enough as it is.

So I will hate Starbucks even more if they start to use technology to replace these people in the hopes that they can get people a drink in 25 minutes and not 30.

So listen, they’re on my list.

We definitely give them a down.

They’re definitely down.

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