Why I’m bullish on Starbucks

Posted by on July 7, 2006

OK. I don’t pretend to know what will happen short-term, but Warren Buffett’s method of investing in what you know makes sense to me, and it’s sending me a strong buy signal.

Starbucks Cup

A year or two ago, I started frequenting Starbucks – I did it because there was a Starbucks store in West Sacramento that was open late and had a drive-thru window. This was a trick for Saturday nights when Sunday morning’s sermon just wouldn’t flow. I ordered what has long been my favorite at specialty coffee stores – a mocha.

But here’s what has happened… I have become accustomed to the flavor of Starbucks coffee – it brings me comfort. I started to want it more and more often – to the point where I started tracking it as its own category in Quicken so I can make sure I’m not overspending the budget on it.

And then I found that the name of the drink I order getting longer and longer. I started getting large mochas with half caffeine since I’m mostly off of caffeine but can use some help on Saturday nights. That’s a “venti halfcaf mocha.” Then I decided to fight wight gain a bit so it grew to “venti halfcaf mocha, no whip.” Then I needed to fight harder in the battle of the bulge so now I order it with low-fat milk, which translates to a “venti halfcaf percent mocha, no whip.” This is the magic of Starbucks. People form a relationship with them. I have my drink name in their language. And I hear lots of other people come in with their special drinks – “a grande soy latte, extra hot” or whatever it is. (See a USA Today article on the trend from 2004 – wish I had bought it then!)

Starbucks founder Howard Schultz has been quoted as saying, “We aren’t in the coffee business, serving people. We are in the people business serving coffee.” He’s right. People can’t just go anywhere to get their drink. And there are more ways to personalize it all the time.

When an article came out recently about how high in fat Starbucks drinks can be, they changed their menu board to offer ways to reduce the fat in your drink. What a positive, proactive way to address it! The place keeps reinventing itself as necessary to keep up with its target audience, and the worldwide growth plans are huge.

I’m sold. Or more accurately, my kids are. I bought a few shares of SBUX for each of them. Hopefully in 15 years, they’ll make a dent in the cost of a college education. Sure, the P/E ratio is high, but my boys are in it for the long-haul.

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