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Is Starbucks Still at War With McDonald's?
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Starbucks Corp. (NASDAQ: SBUX) posted good numbers for its most recent quarter. They were not, however, strong enough to support any improvement in its stock. While the coffee company’s numbers are comfortably good, Starbucks is no longer a growth stock. Either its own operations are capping growth or some outside forces are. The most likely of those forces is McDonald’s Corp. (NYSE: MCD), which continues to have impressive results from it breakfast efforts.
Starbucks’ comparable store sales rose 2% worldwide in the quarter that ended April 1, and U.S. sales rose by the same amount. Starbucks management reported this was due to a 3% increase in ticket price, or what each person who comes to one of its stores spends. Without this improvement in what customers spend, Starbucks sales would have been flat, at best. Starbucks is no longer opening stores quickly. It only added a net 170 in the most recent quarter. In its Americas business, revenue rose only 8% to $4 billion. Operating income, which is used to measure divisional profits, dropped 3% to $802 million for the region.
After a fallow period of growth, McDonald’s has hit its growth stride again. Most experts say this is due to two factors, beyond menu items, that are attractive. One is the strength of breakfast sales. The other is the number of stores McDonald’s keeps open for 24 hours a day.
Breakfast is likely where McDonald’s is hitting Starbucks the hardest. While Starbucks has built an all-day menu, it is still basically a coffee store. And Starbucks has few, if any, locations that are open 24 hours a day. McDonald’s draws customers for lunch and dinner. It is a more complete fast-food restaurant in both menu selection and accessibility.
Are Starbucks’ growth days behind it? In the United States, the answer most likely is yes. At least part of this is due to the fact that McDonald’s has broken into Starbucks’ business territory and won’t leave.
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