Why Starbucks' Latest Moves Should Lift Its Shares Even Higher
Starbucks (SBUX) - Get Report has enjoyed a good week, ending Thursday on a high note above $57.50 per share. A series of successive headlines have catalyzed the stock after a couple of weeks of post-Brexit doldrums. Simply put, both coffee drinkers and investors have reasons to be excited about the brand again.
The Seattle-based coffee chain has always maintained a certain cachet among its customers. With prices higher than America's other favorite coffee stop, the no-frills Dunkin Donuts (operated by Dunkin' Brands), the company's coffee cups are almost a status symbol, a fashion accessory for the upwardly mobile java partaker.
This is why customers don't bat an eyelash when the company raises its prices, which it now tends to do every July. And this is why investors piled in this week when Starbucks announced that it would be lifting the prices for some of its most popular drinks.
But now the company wants to take its upscale image a bit further. And there are some profit-making implications here for investors as well.
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On Thursday, the chain announced that it will be joining forces with an upscale Italian bakery and restaurant to bring baked goods and other food items to many of the company's retail locations.
Food has been a problem for Starbucks. It doesn't own kitchens at its coffee bar locations and relies on nibbles brought in from elsewhere. Back in 2012, the company purchased bakery chain La Boulange for $100 million -- the company's largest-ever acquisition -- but that proved a bust, and Starbucks has now closed all 23 bakery locations. For the hungry coffee-drinker, Starbucks now offers in-house brand sandwiches and pastries that many customers feel leave a lot to be desired.
That's why Starbucks' announcement that it will be investing in Milanese bakery and restaurant operator Princi was welcomed by both potential diners and investors alike. "This is an opportunity for us to elevate food," said Starbucks CEO Howard Schultz.
Princi will provide food at Starbucks Roastery locations, the chain's upscale shops located in major cities around the globe. In return, the company will help Princi open more locations for its own bakeries and restaurants.
This is just a small step for Starbucks on the road to improving its food issues, but we can see an alliance with Princi expanding to more Starbucks locations, including shops that are set to open in the future. And the move certainly helps the company to cultivate its gourmet image, which even fast-food icon McDonald's is attempting to do by testing products made with "foodie" favorites quinoa and kale.
Starbucks is a savvy company with a slavishly loyal fan base. It's basically the Apple of coffee: Its customers are hooked and unlikely to switch to other brands on a casual basis. Investors hungry for profits should look for any dips to grab shares of this coffee -- and soon, gourmet foods -- chain.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.