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I'm considering making SBUX my next stock choice and I've been running it through the Rule Maker Spreadsheet as well as looking at some of the compiled lists available. 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? 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? Seems to me it would be a better test for Starbucks as a Rule Maker. Also I'm thinking of trying them against Krispy Kreme much for the same reason that one would have Noah's as a competitor.

Thoughts, anyone?
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I'm considering making SBUX my next stock choice and I've been running it through the Rule Maker Spreadsheet as well as looking at some of the compiled lists available. The one thing that is giving me some doubts is the selection of competitors for Starbucks.

This might be a case where the RM Essentials spreadsheet would give a simpler and clearer picture of the general health of the company.

But if you'd like to push things a bit, what about Coke, another beverage company, or McDonalds, another no-surprise place to stop and get something to eat and drink while you're waiting at the airport?

Just my 2¢
Morris

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Boy our friends at the Rule Breaker Port are looking more like Rule Makers now. I would consider America Online, Amgen, and EBAY to be Rule Makers in their respective fields. Starbucks is on it's way ,if it's not already there now too.

Fool On,
redhornet
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I do have a thought for you. My question is, why would anyone want to invest in the restaurant industry in the first place?

The restaurant industry is not the growth darling it once was. It's now glutted with competition and has become an overly mature industry. Even stalwarts like McDonald's are showing weakness in their stock performance.

Personally, I view Starbucks in much the same way I view Gap. I wouldn't invest in either because both compete in very FICKLE, mature industries. What looks extremely attractive today can change like the wind and look equally unattractive tomorrow (Boston Chicken comes to mind as a good example). I can think of better industries in which to invest my money.

(My disclosure: I've been self-employed in the restaurant industry for many years. I know this segment very well)

hogan
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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
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I'm looking at Starbucks primarily as a diversification stock for my portfolio, which is fairly heavy in tech stocks right now. I chose to look at them primarily because I buy coffee from them literally every day and am able to see the number of people who also do so. From that starting point, I'm going over their numbers and from what I can see so far, SBUX would be a solid long term investment. But if the company is well-established, even mature industries will continue growth. Maybe not at the rate of a Cisco or Oracle, but I'm interested in how Starbucks chooses to expand now. I think they will reach a saturation point sooner than later with their stores, so they've already begun looking towards int'l sales, supermarket sales, and other products. Their success in these other areas is what will truly ramp Starbucks growth upwards in the coming years.
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I hope you are right. Good luck with your investment.

hogan
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Hoover's lists companies that are in the same industry as SBUX at this link:

http://www.hoovers.com/industry/description/0,2205,6131,00.html

Note that not all of these companies are public. Nor are they all direct competion for SBUX, but it's a start.

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My 2 cents, I think Starbucks is a reasonable place to go to balance technology. I favor tech stocks, and so it's a challenge to research non-tech. I'd be interested to know what other companies you're considering, especially if they meet the RM criteria in the fundamentals.

Starbuck's numbers don't quite reach the standard on net margin, they seem to be hovering around 6% if I'm not mistaken. Perhaps this is as good as we'll get in this industry. The rest of the fundamentals look good, though.

I'd watch their sales growth, which is trending slightly down. They're promising to add something like 500 more stores in the next couple of years by building up into other countries. This should help.

In terms of competition, as an investor I think it's a good thing when a company is the one we bash because they have so much visibility. They're everywhere. This equals convenience.

Amy

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Amy this post is not intended to bash SBU but is based on my observations during travels around europe. IMHO europe will be an interesting challenge for SBU. There you find expresso machines in, it seems like, every restaurant and, in addition, there are many small business operations that are basically coffee shops serving SBU type products. Many of these small operators are in the malls with standup tables etc. So one can buy speciality coffee on many street corners.
As I said it will be interesting to see how SBU penetrates the market in europe. I'm assuming SBU intends to expand into the europe market.

Hal
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Re Europe

Starbucks does OK in London - capital of a not exactly a country known for its coffee. I have not seen a starbucks anywhere else and in S France and Italy (for example) I predict approximately 0 demand. We already have about 5 coffeeshops per inhabitant anyway and we can already sit down at them and watch the scenary walk by ....

DD
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Sorry - it's Japan. I believe the story is that Starbucks is opening stores in Japan, and supposedly are having pretty good response so far.
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Hal,
I don't know if Starbucks is going to try to take expresso back to the old country, but I do know there are about 6 Starbucks just on the main drag in Singapore. I also bought Starbucks to balance out my tech stocks, and it has been very rewarding so far.
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Starbucks does OK in London - capital of a not exactly a country known for its coffee.

Ain't it the truth!

I was in Glasgow, Scotland last month and saw 3 Starbucks there. I didn't see them anywhere else in Scotland, but then I didn't go to any other large cities, just small towns. Of course this is just my own informal survey in one country which doesn't really tell us much. I wouldn't expect Starbucks to be very popular in a place like France.

Starbucks is expanding. It is very difficult to get a decent cup of coffee anywhere else in Scotland, so it's a market waiting for someone to move right in, and Starbucks appears to be doing just that.

I own Starbucks stock even though I've never thought of it strictly as a Rule Maker. I do think it's heading that way though, JMHO of course.
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