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Starbucks Looks Weak Next to Competitors

05/02/08 - 12:24 PM EDT

Marek Fuchs

As Howard Schultz of Starbucks tours America, speaking all about how the chain's troubles are a function of fumble-fingered operations at the store level, investors should ask whether he's right or whether the company's woes are even within its control.

The best way to answer this question? We could start by comparing Starbucks' SBUXresults with those of two other coffee peddlers who reported earnings: Peet's Coffee & Tea PEET and Green Mountain Coffee Roasters GMCR. Caribou Coffee Company CBOU, which reports after the close Wednesday, should also be part of this comparison.

Maybe it's because Starbucks seems so singular and because the charismatic and publicity-savvy Schultz could suck attention from the sun, but excluding The Motley Fool and Barron's, I haven't seen many attempts to gauge Starbucks' performance relative to its competitors'. See the Fool's story here and Barron's story here.

They Just Don't Get Starbucks!

These stories don't hold all the answers, but neither do I. Here's what I do know: Peet's and Green Mountain reported decent earnings, as Starbucks was reporting disappointment. But the comparison is not a precise parallel. Green Mountain does a good deal of grocery business, whereas Starbucks' emphasis is on stores. Peet's, which has stores but has expanded into groceries, reported decent earnings but issued lower guidance on sales growth for 2008.

So what does this convoluted mess of facts say about Starbucks? I started the week thinking that Schultz, whom I respect as much as any other CEO in the nation, was lying. OK, not exactly lying, but throwing up some thick smoke to obscure the fact that Starbucks has gotten too big and has too much competition to return to sizeable growth. In other words: Starbucks had become a 2008 version of the Gap GPS. Once Gap hit a critical mass a decade ago and competitors had caught on to its strategies, it could promise baton twirlers walking the aisles and customers still wouldn't find the store as exciting as they once did. The same, presumably, could be said of Starbucks.

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At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven? column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback; click here to send him an email.


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