The Motley Fool Discussion Boards

Previous Page

Investors' Roundtable / Rule Maker Companies


Subject:  Re: Starbucks as Rule Maker? Date:  8/26/2000  11:38 PM
Author:  TMFTribe Number:  6977 of 8329

The one thing that is giving me some doubts is the selection of competitors for Starbucks. Can you really validate a company as a Rule Maker when you put them up against penny stocks like Einstein/Noah's Bagels?

That's a valid point, but in a way I think it almost validates Starbucks Rule Maker candidacy. When I did my analysis for Starbucks way back when, I honestly tried to look for companies that compete with them on a national scale. Unfortunately, it's hard to find a direct competitor of any size. For example:

1) The most direct competitor would be your local coffee houses that sell a similar product line to Starbucks. However, most of these examples have very few locations in a very localized area, so to say they "compete" with Starbucks in a larger sense is stretching it to say the least. That would be like saying Joe's Hamburger Stand in rural Georgia competes with McDonalds.

2) You could also try and use some of the grocery store brands (Maxwell House, Millstone, etc.), but I think that is a totally separate market from what Starbucks is targeting. If I like a Caramel Mocchachito from Starbucks, I'm not really going to be swayed by Taster's Choice or anything else. I think the converse of that is true too ... if I am a Folgers or generic coffee drinker, I'm probably not going to walk into Starbucks and plop $3 down for a cup of java.

3) You could use the donut shop chains (Dunkin Donuts, Krispy Kreme, etc) since they sell lots of coffee, but that again is sort of an imperfect comparison. If I want a pastry, I'm going to go to a donut shop, not Starbucks ... and if I want a good cup of capuccino or expresso, I'm not going to go to Dunkin Donuts.

I know when I initially did the analysis, Tom Gardner suggested that we just automatically give them the 20 points in the Monopoly Status section simply because they don't have a national competitor that competes in their space. Rather than capitulate so easily, I tried to use the best group of competitors I could find, which still proved quite difficult. In any event, they still racked up 16 out of 20 points, thus confirming our assessment of their dominance in this arena.

Since the company is now going after the same shelf space as brands like Folgers or Millstone, how would one go about placing Proctor & Gamble as a competitor since it has such a broad range of products aside from just coffee? ... Also I'm thinking of trying them against Krispy Kreme much for the same reason that one would have Noah's as a competitor.

Hmmm ... I guess you could, but Proctor & Gamble does so many other things other than just coffee that it probably would just skew the analysis. If you really want to use someone else, I would try either Dunkin Donuts or Krispy Kreme. At least their product lines are slightly similar to Starbucks. I know I didn't use Krispy Kreme back when I posted my analysis because they were still a private company then, so their financial data was not available.

Just my two cents.

the LanceMan

Copyright 1996-2022 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us