Starbucks is flying high

Jan 24, 2012

2011 was a terrific year for the Seattle-based Starbucks coffee chain. The stock shot up 43% last year and recently hit record highs.

Financial commentator Greg Heberlein and KPLU's Dave Meyer look at the successful company on this week's Money Matters.

If you had purchased 100 shares of Starbucks stock when it went public back in 1992, it would have cost you $1700. That investment would be worth more than $150,000 today!

Starbucks is one of the greatest growth companies in the market today. When Howard Schultz bought the company in 1987, it had just nine stores, all in the Seattle area. How could such a little company take on the world?  

The far-sighted Schultz has kept critics at bay by remaining innovative.

Starbucks established employee loyalty by offering an excellent benefit package. Initially a brewed coffee provider, Starbucks continually boasts new products. In no particular order, it has added coffee equipment and beans, pastries, lunch items, juice, selected CDs and Wi-fi capability.

One statistic said that 40 percent of coffee drinkers didn’t like Starbucks’ rich flavor. So last year, Starbucks introduced its blonde roast, a milder coffee.

Analysts said that when the economy slacked off, those willing to pay $4 for a latte would fall off significantly. When McDonald’s began selling lattes, analyst figured the world’s most popular low-cost food provider would eat into Starbucks’ business.

Skeptics scoffed when Starbucks announced plans to invade Asia, where tea is the preferred drink of the day. It now has more than a 1,000 stores in Japan and 500 in China. It plans to triple its Chinese presence within three years. And it expects to enter India this year. China and India account for more than a third of the world’s 7 billion people.

Starbucks now has 19,000 stores. It'll open open more than two stores each day this year all around the globe.

Will it ever end?

Yes.

There is an adage called the law of large numbers. It says that as a company grows, it eventually will be unable to maintain its growth rate. Microsoft, now barely a third of what it was worth at its peak in 1999, knows all about the law of large numbers.

But that doesn’t mean Starbucks will see growth diminish in the foreseeable future.

While Greg doesn't feel like he's in a position to recommend anyone buy or sell the stock right now, he believes company's future looks bright.