Anytime I write about Starbucks I only feel it fair to preface my articles by stating that I practically live, eat, and breathe Starbucks coffee. I’ve been ritualistically ordering the same drip coffee from Starbucks for 17 years without waver, and I do a lot of my research in what is now referred to by the dozen-and-a-half baristas here as my “office.” So keep that bias in mind as you read on!

The question I propose to answer today is simple: Is Starbucks a buy at its current levels, given the fact that it’s valued at 31 times trailing earnings, and knowing that restaurants and retailers across the board are struggling to bring in customers with a higher payroll tax and delayed tax refunds taking their toll?

To answer this question, I propose to look into the very heart of Starbucks’ success — in essence, at the innovation, emulation, and collaboration that turned it into the leading coffeehouse you now see today.

Source: commons.wikimedia.org. 

Innovation
I’m not certain there’s an investor out there who would question just how valuable CEO Howard Schultz is to the Starbucks franchise. With domestic sales growth floundering in the late 2000s, the reappointment of Schultz to the CEO role was precisely the spark Starbucks needed.

Schultz’s plan encompassed numerous key points to help get Starbucks back on track. These included remodeling and refreshing the inside of many of its retail locations; expanding into high-growth overseas markets like China; and refocusing its menu to include more health-conscious options.

The results have been utterly phenomenal. Starbucks’ free wireless Internet offerings and its mobile payment partnership with Square, as well as its fresh look, have encouraged patrons to stay in its stores longer, occasionally leading to secondary purchases that the company would not have made if that same customer had come and gone just years prior.

In terms of overseas growth, Starbucks is aiming at having 1,500 stores open across 70 cities in China by 2015. Even with China‘s GDP below its 30-year average, the growth in the country’s burgeoning middle class is enough to merit a big international push.

Finally, Starbucks has firmly embraced the move toward supplying more nutritious food and drink options. Starbucks was one of the first coffeehouses to make this move — relying heavily on local growers to supply its all-natural selection — and realized that consumers will pay a premium for healthier food and drink options if those options are perceived to be more nutritious.

Emulation
Starbucks’ innovation is second-to-none in the food service industry… but even it can’t invent everything.

Take Green Mountain Coffee Roasters , for example. The company behind the Keurig single-brew coffee system and individual serving K-Cups bet big on the single-serve market in 2006 when it purchased the remaining 65% stake of Keurig that it didn’t already own for $104.3 million — a hefty price for a still unknown company at the time. That bet, as we’d later …read more

Source: FULL ARTICLE at DailyFinance