1 Stock Brewing Up Great Profits
Public companies, by their very design, are always pursuing growth. Some companies do it well, others not so well. Starbucks (NAS: SBUX) is a company that does it well and has been on a real roll of late, expertly making just the right moves at just the right pace.
With its recent announcement that the company will start selling its very own, high-end home espresso machine, Starbucks is keeping that roll alive. Here's the scoop on that, a look at what else the company's been up to, and why it all adds up to good things for investors.
Bringing home the espresso
The new home-brewing machine is called the Verismo System. Per Starbucks, it will be able to brew single-cup, cafe-quality espresso beverages as well as regular coffee. The machine is made by Krueger, a German company. The secret to being able to brew Starbucks cafe quality beverages is what the company is phrasing "a patent-pending, high-pressure extraction capability."
Speaking on the market-space potential and the new brewing technology, CEO Howard Schultz said in a statement: "The premium single-cup segment is the fastest-growing business within the global coffee industry. We have long believed that the biggest prize within the segment is a high-pressure system that would give us the opportunity to deliver Starbucks-quality espresso beverages at home and at work for customers who desire the Starbucks espresso experience outside of our stores." The system will go on sale this fall, just in time for the holidays.
This coffee machine is just right
Home espresso machines have been on the market for years now, so it makes sense for Starbucks to get in on the action with its own machine. And it makes even more sense for Starbucks to do it on its own terms. I give Schultz credit for holding out on this one, because he very easily could have slapped the Starbucks logo on an inferior machine years ago, making a profit but at the cost of the company's reputation.
And that's been Schultz's modus operandi since he returned to the CEO slot in 2008. After founding the company and building it into a small empire, he retired as CEO in 2000. The company quickly got into trouble: expanding too quickly, letting quality slip, and allowing employee morale to plunge. In 2008, Schultz returned to the helm and turned Starbucks completely around. Starbucks is Schultz's baby, and he is making sure to do things right now.
Conquering the coffee world
Starbucks is also on the move in Europe. It recently announced a major shakeup to recapture the lead there. Three hundred new cafes are set to open in the U.K. in the next five years, and the company will introduce consumer-friendly pricing innovations such as free espresso double shots in the U.K., as well as a lower-priced cappuccino for austerity-gripped Greece.
Also significant for its European ambitions, two of Starbucks' traditionally fiercest rivals aren't a big issue there. Dunkin' Brands (NAS: DNKN) has a presence in Germany, Spain, and Russia, but ultimately lacks the necessary scale to oppose Starbucks. The ubiquitous McDonald's (NYS: MCD) has upped its coffee game in recent years, but Starbucks' real competition in Europe is austerity, which the company is addressing through the aforementioned free double shots and cheaper cappuccinos.
Simultaneous to the European move, Starbucks is also expanding into India. It recently entered a 50/50 joint venture there with Tata Group, the Indian conglomerate that's into everything from steel to cars to hotels, but is also famous for its tea. Starbucks and Tata will open cafes nationwide there beginning this year. And China is already going gangbusters for Starbucks.
Starbucks takes the long view
Starbucks has been in the single-cup, brew-at-home business since 2009, when it introduced its VIA Ready Brew instant coffee and began selling Starbucks coffee for Green Mountain Coffee Roasters' (NAS: GMCR) Keurig K-Cup machines. The Verismo System is definitely competition for Green Mountain, but Schultz maintains that "this is not about any disappointment with Green Mountain; it's about controlling our own destiny. They can and they will co-exist."
On top of everything else the company is doing, the Verismo System is a logical, well-thought-out next step for Starbucks. Schultz takes the careful view as well as the long view in developing his company, pursuing growth and profit the smart way -- which we here at The Motley Fool love. Here's something else we love, a stock we're calling our top pick for 2012. Read all about it in our special free report, aptly titled "The Motley Fool's Top Stock for 2012." Get it while the stock is still hot by clicking here now.
At the time this article was published Fool contributor John Grgurich thinks a "business" trip to London or Paris is in order to see just how Starbucks' revamp is coming along, but he owns no stock in any of the companies mentioned in this column. Follow John's dispatches from the bloody, front lines of capitalism on Twitter@TMFGrgurich. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks, Green Mountain Coffee Roasters, and McDonald's. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. Motley Fool newsletter services have recommended writing covered calls on Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a perfectly scintillating disclosure policy.
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