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Starbucks may top McDonald's as No. 1 food chain
Sun Apr 9, 2006 2:23 PM ET


By Nichola Groom

LOS ANGELES (Reuters) - Think there's already a Starbucks (SBUX.O: Quote, Profile, Research) on every corner? Just wait. The fast-growing chain plans to nearly triple in size and some see it growing even bigger, one day topping hamburger giant McDonald's Corp. (MCD.N: Quote, Profile, Research) as the largest fast-food brand in the world.

The chain has set a goal of 30,000 units, half in the United States, but last month the company's chairman suggested the target is too low, leading to speculation on what is the limit for the chain -- and when Starbucks will set a new goal.

Starbucks is credited with rapidly transforming coffee from a 50-cent staple to a $3 indulgence with its chain of comfortable cafes, where customers often hang out with their laptops or newspapers for hours. The chain has been criticized for driving independent coffee shops out of business while aiming to give its own stores a local feel by sponsoring community events and steering clear of national advertising.

Already the world's biggest coffee shop chain, Starbucks' store count has soared to over 11,000 from less than 200 since the Seattle-based company went public in 1992, and at current growth rates it could hit its target in about five years.

Starbucks has several things going for it, analysts say. First, new products like holiday drinks have kept customers coming back for more. Plus, coffee is a habit for many.

"Really important to the company is the new product introductions -- it keeps the customers coming back," said JMP Securities analyst Kristine Koerber, who has a "market outperform" rating on Starbucks shares and owns none. "And it helps selling a product that is considered habit forming."

In addition, Starbucks' brand has a cachet that consumers want to associate themselves with.

"It's not a restaurant, it's a lifestyle model," said ThinkEquity Partners analyst Nicole Miller, who has a "buy" rating on Starbucks shares and owns none. "McDonald's is really a fast-food restaurant. That's why (Starbucks) will be able to have more stores."

CIBC analyst John Glass agreed, writing recently that Starbucks could well become the largest quick-service restaurant brand in the world. Glass has a "sector outperformer" rating on the chain's stock.

30,000 GOAL "LIGHT"

Starbucks itself has begun to raise the possibility that it's 30,000-store target, set in late 2004, is too low.

"I'm quite sure that number is going to be light," Starbucks Chairman Howard Schultz told investors. He did not give a revised figure or a timeline. Starbucks executives were not available to be interviewed for this article.

There is room in the United States and abroad, backers say.

"It's ridiculous to think they can't have more than two times the number of stores internationally than domestically," said Miller. "They could have 30,000 just internationally."

Starbucks has said its 230-store China unit is its biggest opportunity outside the United States. With roughly 250 million people in China's upper income bracket that market could near the ultimate size of Starbucks' U.S. business, Koerber said.

"They could have over 10,000 units in China," she said.

Glass said there is plenty of room to grow at home, as well. Seattle, Starbucks' hometown, has one coffee shop for every 11,754 people, but rival Dunkin' Donuts has built out even more densely in its own home turf, Massachusetts, with a store for every 8,400 people.

Thus much of Starbucks' U.S. growth will come in markets where there are already hundreds of stores, such as the West Coast.

The United States has room for as many as 22,000 locations, compared with the company target of 15,000, and Glass projected the company would raise that goal later in the year.



© Reuters 2006. All Rights Reserved.

:goon:
 

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I guess beans overly roasted to mask flaws have to be sold somewhere.
 

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Dunkin Donuts is where its at. I drink that stuff 5 days a week and its just pure bliss.

If I drink Starbucks, and I have to grit my teeth cause its really not that good. The majority of people that drink coffee there anyway, do so because of 1000 calorie drinks, and the brand name, which is right up there with BMW in terms value. People like being seen carrying that hip venti starbucks cup with cardboard insulator.
 

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Same here. Dunkin' Donuts is where the good coffee's at. Here in MA, you only have about 57 to choose from in every town. You're never more than a block away from one, usually two. There are two on opposite sides of the street about 1 block away from my house (A and B):

http://maps.google.com/maps?f=q&hl=en&q=du...donuts+in+01749

I have to admit, *$ makes a tasty frozen foofy dessert thingy. But I usually want, uh, you know, coffee. Their coffee is just ugh. I guess it's supposed to be high end, but maybe I'm just not sophisticated enough, it just tastes burned to me.
 

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i love that shit, oversweetened cold coffe carmel mixes are GREAT!

ill keep spendin my money there.

and i know plenty of coffee shops that are local that are doing a great job and no way will ever go out of business, even tho there is a starbucks right on the corner.

besides, starbucks is classy, if your drinking starbucks coffee, your classy, if your drinking white hen coffee, your not classy.

where else can you get free internet! (business people love it with laptops :))
 

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Discussion Starter #6
Same here. Dunkin' Donuts is where the good coffee's at. Here in MA, you only have about 57 to choose from in every town. You're never more than a block away from one, usually two. There are two on opposite sides of the street about 1 block away from my house (A and B):

http://maps.google.com/maps?f=q&hl=en&q=du...donuts+in+01749

I have to admit, *$ makes a tasty frozen foofy dessert thingy. But I usually want, uh, you know, coffee. Their coffee is just ugh. I guess it's supposed to be high end, but maybe I'm just not sophisticated enough, it just tastes burned to me.
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Dunkin' dumbs it down
Posted Apr 10th 2006 6:52AM by Nicole Weston

The core market for Dunkin' Donuts is the segment of the population that feels uncomfortable with the word "panini." To accommodate them, the company changed the name of one of their new sandwiches to "stuffed melt," but this isn't the end of their push to make customers more comfortable.

In an article (subscription only) in the Wall Street Journal, the marketing and branding teams of Dunkin' Donuts revealed their research has shown there are two main groups in their potential customer base, dubbed "tribes." In the first tribe, there are people to frequent Starbucks. They like the atmosphere there and want their coffees with a couch; Dunkin' locations are too bare-bones for them. The second tribe is the Dunkin' tribe. These make up the core audience for Dunkin' donuts and are "bewildered and turned off by the atmosphere at Starbucks." When they do, perchance, wander into a Starbucks, they "don't get it."

To keep the existing customers happy while bringing in new ones, Dunkin' Donuts is making some changes. In addition to renaming some of their products, they are bringing in new foods, like dough-wrapped pork and "Dunkin' Dawgs" to encourage customers to come in at lunch time, as well as cookies and other baked goods to bring them in in the afternoons. The pastry cases and espresso bars will be revamped to look flashier, but there will still be no couches. They don't want customers to feel too comfortable because it actually, according to their research, makes the Dunkin' tribe uncomfortable
http://www.slashfood.com/2006/04/10/dunkin-dumbs-it-down/

Interesting...
 

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Ahh, no.

Sorry, but paying close to triple the price for a lousy cup of coffee is dumb, period.

I don't care about flavors, sizes, or the dumb other sh*t that you can order. I have better things to do with my time and money.

Between Starbucks and DD, some people spend over $100 a MONTH on that crap. That's $1200 per year that can go to bigger and better things...
 

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I'm personally a Caribou boy. Much better coffee, a northwoods cabin atmosphere, and cinnamon hoof mints! Though in all honesty, I don't frequent any coffee shop. Maybe once or twice a month as a place to sit with friends or for a smoothie in the summer (Caribou has awesome smoothies!)
 

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Thats exactly why Starbucks continues to exist and grow. Its the daily customers that indulge in having the foo-foo caffine drinks with a whipped cream dome display, and green straw. Its 'designer'.

Its the prominent reason why women pay $400 for a Coach handbag. Part of the reason why BMW vehicles are more expensive than they are worth, even with all the german engineering. The reason why Apple computers are much much more expensive than their PC equivalents (although the new apples are using IBM processors). The reason Movado watches are on average of $800 retail. The brands are categorized as 'designer'.

Its all about brand name value and the ability to exploit it to its full market potential. Starbucks has taken both an 'in-your-face' and smart-marketing approach. Instead of wasting millions on marketing, they are focusing on getting as many stores open as possible. Their brand name gets flashed WAY more because more people will be carrying the cups with the name, in turn ending up an even greater percentage of potential customers. The majority of the marketing you experience is in the store, and its the type that reminds or even makes the customer feel that he/she is sophisicated, in a suave manner. They don't care about having potential customers that never enter an ideal social atmosphere, such as a shopping/business area/mall or a office-complex area.
 
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