Filed under: Forecasts, Consumer experience, Competitive strategy, Starbucks (SBUX), McDonald’s (MCD), Stocks to Purchase
I’ll admit the headline is a bit deceptive. On one hand McDonald’s (NYSE: MCD) has seen a resurgence in its business and frankly, the shares have done very well. In fact since McDonald’s went through its own set of problems five years ago, the stock has since tripled in value.
The parallels between Starbucks (NASDAQ: SBUX) and McDonald’s are very eerie. Starbucks has hit the proverbial wall after a successful ride from 1992 to 2007 as one of the premier GameChanger stocks around. Starbucks, like McDonald’s over-expanded its store base in the United States and began to cannibalize its own revenues. Starbucks, like McDonald’s, lost its principle focus and did not tend to ‘what got them there”.
In late 2002 McDonald’s stock had just completed a 4 year run of losing 70% of its value. The company was becoming a hodgepodge of different menu items, culminating with the disastrous release of the McLean Deluxe, which wasn’t even all beef! Advertising and marketing programs were a mish-mash of geographical themes yielding no consistency whatsoever. McDonald’s even posted, for the first time in its illustrious history, an operating loss in 2002, and experienced negative same store sales for the first time, as well.
Then CEO Jim Cantalupo said enough was enough. McDonald’s closed 700 unproductive stores (sound familiar?) and re-focused its menu and advertising campaign.
This is when the advent of “I’m Lovin It” went global — yes, even in France! Unproductive stores shut and the rest of the survivors received a major face lift, including new kitchen equipment, new seating plans, fresh exteriors and even wide-screen TVs strategically put for customer viewing and comfort. The menu went back to basics, eliminated the Super Size failure and introduced entree-size salads and other healthier alternatives. As I said, the stock has tripled since.
Starbucks has hit the wall. Sloppy execution, too many units, confusing menu, etc. Returning founder and now CEO Howard Schultz has now said “enough is enough.” He is closing 600 unproductive units, re-training partners to the core founding principles and choosing to spend the company’s expansion capital overseas where the true growth lies.
Starbucks has also experienced, painfully, negative same store sales. The stock is at a low point, as was McDonald’s in early 2003. Can Starbucks stock triple over the next five years? Yes. With back-to-basics execution, expense control and controlled unit growth, Starbucks can elevate its value over the next five years. The good news for Starbucks is the competition remains on a regional basis and no one competitor is set to go national or even global. The early advantage still belongs to Starbucks. If Howard Schultz and the management team can re-set the bar, the stock is a screaming buy for patient investors. The full results of the June quarter are not out yet, nor will they be pretty. But, it’s priced into the stock already.
History does have a way of repeating itself …
Georges Yared is the editor of GameOn Investing, a free service devoted to investors spot GameChanging stocks before they break out.
Entries (RSS)