Starbucks steams forward but faces headwinds

The coffee retailer’s massive expansion has allowed it to dwarf direct competitors such as Peet’s Coffee & Tea and Caribou Coffee. But increasingly, Starbucks is facing threats from other big, established brands that are moving to upscale coffee, including McDonald’s and Dunkin’ Donuts.

Owens said those companies do represent some competition for Starbucks, but he noted that they generally do not offer the ambience, including comfy chairs and other amenities, that are part of Starbucks’ draw.

“There’s not a significant overlap between their customer bases,” he said.

Maher also notes that Starbucks is combating the competition on their turf as well, by offering hot breakfast sandwiches and other food items that compete with those outlets.

International business potential
As the U.S. business grows more mature in coming years, the international market still holds potential, as Starbucks Chief Financial Officer Michael Casey recently told analysts.  Starbucks currently operates about 10,000 U.S. stores and about 4,000 international stores. Company executives hope they eventually will have 20,000 international locations and the same number in the U.S.

Starbucks has said it sees enormous opportunity in developing areas such as China. Still, the company has hit some stumbling blocks as it navigates that expansion. Recently, it had to put its highly anticipated move into India on hold.

Owens says he does see long-term potential overseas, noting that the company has been highly successful in building its brand in the United Kingdom.

“I think the Starbucks brand actually translates well,” he said.

But a real payoff could take years. For now, the U.S. operations accounts for about 80 percent of the company’s profits, compared with less than 10 percent for overseas operations. The rest of its profits come from sales of coffee beans, bottled coffee drinks and other items sold at grocers and other retailers.

“I do think ... that investors and analysts see a lot of potential internationally, but they see it as coming quite a bit further down the road,” Geiman said.

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