Starbucks: Can Everybody Make Money on Fast Food?

Retail

Published: January 23, 2015 6:30 am

Starbucks Corp. (NASDAQ: SBUX) has announced an extraordinary increase in its financial results. For the quarter that ended December 28, revenue rose 13% to $4.8 billion. EPS rose 83% to $1.30, which was affected a small number of one-time items. Outside analysts commented that much of the improvement was because of the move Starbucks has made toward selling food. That puts it in competition with an army of other fast-food sellers, and it raises the question of how much fast food Americans want.

Starbucks supporters would argue that its customers are at the higher end of fast-food consumers, and that its fast-food quality is at the high end as well. However, some of its food has characteristics, at least from a calorie standpoint, that place it in the McDonald’s Corp. (NYSE: MCD) category. The Starbucks Sausage & Cheddar Breakfast Sandwich has 500 calories, 250 of which come from fat.

As its fast-food sales grow, Starbucks faces the same hurdle that McDonald’s, Subway, Burger King and pizza and chicken chains face. Fast-food sales may have become a zero-sum game. As Americans look for healthier meals, and the prices of fast food rise, Starbucks may find the only way to expand is by taking business from other companies. Those companies have tried to flank Starbucks in the coffee business for years. Some would say that currently wounded McDonald’s has already done a good job.

ALSO READ: The Bullish and Bearish Case for McDonald’s in 2015

Any fast-food chain keeping track of Starbucks will mimic its menu, which seems like a ready way to compete with the coffee store company. Starbucks has loyal customers, based on same-store sales information. Stealing its customers may be very hard. But Starbucks has to steal customers from the likes of McDonald’s as well. Fast-food consumption, therefore, has become a loyalty test.

Starbucks is late to the fast-food business, which may make it hard to gain as much ground as is necessary to allow the business grow enough to help earnings in future quarters.

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