Starbucks announced last week a transformation strategy that took some by surprise. They first announced that they would be closing 400 stores in the US as they assessed the damage from Covid-19 could be as high as $3.2bn.
There was already a plan in place to close a number of stores over 5 years and open another 600 in new locations. However, this has now changed with the company slashing the planned new openings in half from 600 to 300, while accelerating the closure from a planned 5 years to just 18 months.
The company share price, which is down 10% this year, fell another 3% on the news along with the estimated loss per share of between 64 and 79 cents.
A number of stock watchers are predicting companies with a broader offering might fare better than Starbucks model, which is heavily reliant on beverages. Tim Hortons and Restaurant Brands’ are two examples cited by pundits who believe the diversification will de-risk the stock.
We’re not so sure – as take away coffee is already an accepted model. You can walk into a meeting with a Starbucks coffee, but not a box of chicken wings.
But Starbucks is an organisation that takes data modelling very seriously and has invested significantly in generating a lot of data about the behaviour of their customers. If they believe the market for traditional location-based coffee shops is going to be weak for the medium term at least, then as an industry, we should take note.
