starbucks

STARBUCKS SALES REPORT HIGHLIGHTS THE IMPORTANCE OF RTD

Starbucks fourth-quarter sales are set to be above forecast levels according to the company. However, a slowdown in China, and a rise of COVID cases in North America plus some parts of China, left the stock down 3.3% on the day of the announcement.

Starbucks is regarded as a bellwether stock for cafes and similar businesses. The Resurgence of COVID has made investors nervous, but as I watched CEO Kevin Johnson, talk on Bloomberg television, he appeared upbeat on several factors.

Johnson highlighted the huge increase in sales of cold RTD drinks, which he said are the most popular drink category among the younger generation, Millennial and Gen Z, consumers, and credited the company’s Nitro Cold Brew for part of their success.

The cold drinks category now represents 74% of beverages in that quarter, which was surprising to me, considering just two years ago it was only 64%. If you go back to 2013, cold drinks made up only 37% of sales.

Some speculation on informal news channels cited popular Tik Tok videos as another explanation for the rise in popularity of trendy cold coffees, over more traditional options.

In the interview, Johnson addressed the number of increased costs the industry is facing, including significantly higher transport costs and some of the highest Arabica prices in over six years. He stated that the company buys coffee far enough in advance that they can largely avoid having to react to short term price fluctuations.

Johnson was relaxed about supply costs because he felt that they are short term in nature and because many of their drinks use very little coffee! A Cappuccino, or Latte, will use far more milk than espresso, so even a significant jump in Arabica prices has a limited impact on the total cost.

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