Starbucks' U.K. Gamble
The Financial Times is reporting that coffee purveyor extraordinaire Starbucks (NAS: SBUX) is planning to open 300 new outlets in the U.K. over the next five years, bringing the nationwide total to 1,000. The company will hire 5,000 new people in the process.
After an aggressive expansion in 2008 that backfired badly, and food and drink retailers around the world literally closing up shop in the face of curbed consumer spending and rising soft-commodity prices, the question for Starbucks is: Why now?
Cup 'o tea, err, coffee, luv?
Starbucks' new trans-Atlantic adventure is underpinned primarily by a very simple set of facts: The company's U.K. sales have grown for nine straight quarters in a row. That's hard to argue with.
In addition, many of the new outlets will be in the more sparsely populated areas of the Midlands and northern England. The company cites research showing consumers in these more rural areas of the country think coffee on the road is very poor and are now "demanding the same quality they know from the High Street," aka, London and southern England.
To this point, 200 of the new stores will be drive-throughs. According to Kris Engskov, Starbucks' new managing director for the U.K. and Ireland: "Customers told us that they now expect the best possible coffee wherever they are, and the success of our first drive-through stores shows that this is a huge opportunity."
The other X-factor behind Starbucks' decision to return to the U.K., and the one that makes the strongest argument for its success, is CEO Howard Schultz. The previous attempt at expansion was in motion before he had returned to the helm of the company he had founded. Since his return, most everything he's touched has turned to profit.
Management can make all the difference in the success or failure of an enterprise, hence investor worries when singular leaders such as Apple's Steve Jobs and Microsoft's Bill Gates leave the scene. History shows that these worries aren't unfounded. Starbucks is lucky to have Schultz back.
God save the Queen, and the latte machine
This move will also create 5,000 jobs at a time of high unemployment in the country, particularly among the young, which most of Starbucks' baristas are. And there's certainly nothing wrong with making money and making a difference, something the company is known for on many economic fronts.
And while there's always McDonald's (NYS: MCD) to contend with, the Golden Arches don't typically go toe-to-toe with Starbucks, and the two companies aim for different demographics. Dunkin' Brands (NAS: DNKN) may return to the U.K. eventually, after having to close down underperforming outlets in the past, but for now Starbucks has the field. Keep track of this developing story by adding Starbucks to My Watchlist, a free service of The Motley Fool that lets you easily keep up with all the companies on your investing radar.
At the time this article was published Fool contributorJohn Grgurichlikes his Starbucks like he likes his humor: black. But he owns no shares of Starbucks or any of the companies mentioned in this column. The Motley Fool, on the other hand, owns shares of Apple, Starbucks, and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of McDonald's, Starbucks, Apple, and Microsoft and creating bull call spread positions in Microsoft and Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has a scintillatingdisclosure policy.
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