There is no doubt that it’s more fun running a business in the Rapids than one stuck in the Swamp. But it’s surely no walk in the park! Even in high growth markets, competition is fierce and the demands for growth are merciless. Recently Starbucks (see chart here) admitted to a 1% decline in store traffic (see article here). The stock was punished, dropping to it’s lowest price of the year.
Businesses in the Rapids have to grow, grow, grow. There’s no time to relax and count the money. Even a very small hiccup scares the devil out of investors. As it should, because a growth stall could mean a very quick trip from the Rapids to the Swamp. Starbucks has felt this fear palpably.
It is inevitable that Starbucks store growth will slow. Honestly, no matter how good the product or store ambiance, there is a limit to how many Starbucks we need. If we view Starbucks as a one-trick pony, just out to replicate its Success Formula by opening store after store, then investors should be very wary of this company. If Starbucks is Locked-in on selling coffee in its stores, that Success Formula has a half-life and there’s plenty of reason for concern.
But, is that true about Starbucks? Let’s see, they’ve started adding sandwiches and other food to their stores – which could well lead to an increase in the average check size and continue growth even if number of stores and number of customers per store doesn’t grow. They don’t sell coffee just in their stores, but also in grocery and other outlets. They are still moving Starbucks liquor into more liquor retailers. They still produce music, and are the Starbuck’s agency just this year added Paul McCartney to the list of musicians represented. And the movie production company that put out Akeelah and the Bee is still alive and kicking. When we look at all these other businesses, we can see that Starbucks doesn’t rely just on store foot traffic for individual coffee purchases to create growth. They have a number of other businesses, many not just Defending & Extending Starbucks but actually White Space, as growth vehicles.
Starbucks does not do a good job of educating investors about all it does. And its White Space does not get much attention. That’s too bad, because investment analysts like simple stories – and they oversimplify Starbucks when discussing the company’s future. Yes, a drop in foot traffic – even a mere 1% – is something to be concerned about. But the important question is whether any of the other Starbucks initiatives are powerful enough to keep the company in the Rapids. We need to know more about those programs before writing an epitaph for a company showing lots of Disruptions and White Space.