Key Points

• Starbucks has been promoting China as a growth story for years.
• But unexpected domestic weakness and a major international competitor have them struggling.
• The company must change its fortunes in China for the stock to recover.
• Also: While Starbucks struggles, “the Next Nvidia” stocks are soaring. See what all the excitement is about here.

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[00:00:00] Doug McIntyre: Starbucks (Nasdaq: SBUX) is a funny company. Hire a new CEO. Funny if you own it. You hire a new CEO from Chipotle. The guy walks on water, hockey stick stock up. It’s starting to occur to people that this turnaround is not going to be done in a couple quarters. No. This is, this is not ratcheting up over a long period of time.

[00:00:23] Doug McIntyre: If I’m a Starbucks shareholder, I am looking at China. Uh, the U S is there going to be some growth? Maybe good. Same store sales go from being flat to downish to up 3%, maybe. But the management at Starbucks has been flogging the China play for over a decade. They need to go into China. They need to be the winner in China.

[00:00:52] Doug McIntyre: As you know, Chinese population is more than three times ours. What they found out though, is, is that there is a big competitor there called Luckin coffee with 20, 000 stores. So Starbucks not only has the problem, I mean, Starbucks has a. Very big problem that people don’t think about. And that problem is, is that for them to grow, they’ve gotta grow outside the United States.

[00:01:19] Doug McIntyre: Will they grow a little in the United States? Sure is. Do we have a huge opportunity? Are we gonna get 20% growth in the op? No, not in the United States. If the new people don’t win in China, they don’t win. No. The stock, the stock does not have a bright, bright future unless every quarter you start to see a, a movement of.

[00:01:42] Doug McIntyre: 16 percent drop in same store sales to moving towards flat to moving back up again.

[00:01:48] Lee Jackson: Yeah. And you know, same store sales fell for the third straight quarter. You know, that that’s almost impossible to do with a brand that’s that big. So Chipotle guy comes in and the initial salvo of the branding and the creative is just kind of this laid back.

[00:02:07] Lee Jackson: Like, I think the commercial ends up, you know, it just shows everything being sold. Copacetic and in a Starbucks and you know, the barista making a nice, perfect cup of coffee and it just says it ends on something like it, it’s a great day to have a cup of coffee. It’s just the most soft branding reintroduction of, of a brand that’s been around for years.

[00:02:29] Lee Jackson: And the thing is, is. for them to recapture the strength that they had at one time will be almost impossible because of the, uh, and we’ve had this discussion before because of the increase in competition over the last 20 years and, and, and on the East coast where Duncan just almost dominates.

[00:02:50] Doug McIntyre: Dunkin Donuts, where I live on the East Coast, is huge.

[00:02:53] Doug McIntyre: The other thing that people, when people look at Starbucks, they do not realize that Starbucks has a growing labor problem. The, the, the unions are now, You know, there are a few hundred stores that are unionized out of a few thousand stores. When you unionize a few hundred, it gets to be a few thousand.

[00:03:15] Doug McIntyre: That adds to costs. I don’t care what anybody says. The minute you’ve got a union and I’m not begrudging these people, they make like 15 an hour. When you add it up, it’s like, Right around where the poverty level is. If they even get what seems to be a fair shake, which is probably moving from 15 in the direction of 20 Starbucks margins in the United States are going to get creamed.

[00:03:39] Lee Jackson: Yeah. And Starbucks has been sanctioned over labor practices for years. You know, that’s kind of a yeah. Yeah. So I, I agree. And the thing is, is. To be honest with you, and a lot of, yeah, I’m a coffee drinker myself. I haven’t been in a Starbucks in years. I got to be candid with you. But, um, a lot of the, the critics of the product and I, and I, when I read this the first time I thought, you know, that’s kind of true.

[00:04:11] Lee Jackson: They’re, their coffee’s almost like their beans are like over roasted a little bit. It’s just kind of a, it’s hard to explain. It’s not tart, but it’s not smooth like coffee’s supposed to be. Whereas when I’ve gone into other, you know, Pete’s and Duncan, there’s a Duncan right down the street from me and here in Mississippi, you know, and it’s, I mean, literally it’s closer than the Starbucks.

[00:04:35] Lee Jackson: So you’re

[00:04:35] Doug McIntyre: on the wrong show here. We need to get you, we need to get you on a culinary show. Cause you know, about. Stuff about coffee. I don’t even understand.

[00:04:43] Lee Jackson: Well, I only read that, you know, when I was traveling or something like that, I, I kind of struck that with me that it’s just maybe not as good as other brands because it didn’t matter, you know, 25 years ago, cause they were in the only game in town, really in a, in a, in a big picture.

[00:04:59] Doug McIntyre: Yeah, they were.

 

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