Starbucks Keeps The Hype For Lattes Alive As It Turns From A 'Third Place' To 'Convenience Place'

Starbucks keeps the hype and buzz for espresso drinks alive as it turns from a third-place-style cafe to a drive-thru and curbside pick-up coffee shop. It's part of the company's "creative destruction" strategy that helps it win on Wall Street and the main street.

Last week, the world's largest coffee shop chain reported solid financial results for the fourth quarter of 2023. Net income soared a whopping 39%, reaching $1.22 billion. In addition, net revenues grew at 11% to a record of $9.4 billion, as comparable store sales grew 8% globally, driven by both higher ticket sales and higher transactions.

Wall Street cheered the company's financial report sending its shares 12% higher for the week.

Meanwhile, a Placer.ai report found that Starbucks has managed to keep customers coming in as visits to competitors' stores stagnated. Specifically, Starbucks has seen visits far and above 2022's levels in recent months. Year-over-year, visits were up 7.8% in September, 9.2% in August and 1.9% in July. At Dunkin', visits were down 2.5% in September, down 0.5% in August, but up 1.2% in July.

One of the standout features of Starbucks' fourth quarter financial results is its robust sales performance in its home market, the U.S. It validates the company's strategy launched during the pandemic that emphasized more drive-thru and curbside pick-up sales rather than in-store sales.

"This suggests that the company continues to resonate with American consumers, and its offerings and strategies remain highly relevant," said Young Pham, an investment analyst and portfolio strategist affiliated with BizReport. "Furthermore, the expansion of Starbucks' global footprint into new markets, as evidenced by the addition of 816 new stores in fourth quarter, underscores the company's commitment to growing its presence worldwide."

The change in Starbucks' business model is evidenced in the outlook and outlay of new U.S. stores. They are smaller with less conformable seating but with more efficient pick-up facilities.

Slowly, the coffee shop giant is abandoning the old concept of "third place," an affordable luxury where people could enjoy their favored drinks away from home and work. It's turning into a "convenience place," where people purchase their preferred drinks on the run from the drive-through window.

"This shift away from Starbucks being a place where you might have a business meeting to, now, a place for quick-service — in which you might grab something on the go — seems to be paying off," Michael Goldberg, executive director of the Veale Institute for Entrepreneurship and associate professor of design and innovation at the Weatherhead School of Management at CWRU, told International Business Times.

"Indeed, there are more options for takeaway service and fewer store seats, " he added. "This is true across retail, but Starbucks and many other retailers raise prices during the COVID-19 pandemic."

"Instead of dropping the prices after a series of supply chain issues and increases plateaued in hourly wages, they've held prices high," Goldberg said further. "Consumers now accept that their lattes cost more. In some ways, the price increases have outpaced the costs — which means higher margins. So, in many ways, it's not surprising that this has been successful for Starbucks."

Pham expects Starbucks' momentum and solid performance to continue as it expands its overseas presence in new markets. "This move suggests that Starbucks is actively exploring previously untapped markets and seeking to capitalize on emerging opportunities in regions with less presence," he said. "This diversification strategy is a shrewd move, potentially reducing the company's reliance on any single market."

Then, there's the constant introduction of new products in its upscale home market that allows the company to charge premium prices. "This strategic move aims to boost sales and enhance revenue streams," Pham added. "Starbucks is catering to consumers seeking high-quality, differentiated offerings, and this trend is likely to continue in the near term as the company seeks to broaden its product portfolio further."

"Starbucks is a resilient business that can continue to drive same-store sales and margin expansion, even in a shaky consumer environment," explained John Zolidis, president of Quo Vadis Capital and long-time follower of the company. "SBUX shares can outperform given a diminishing list of high-quality consumer names available for PMs to own. We would add incrementally to positions here."