Note: This was one of my very first posts, and may be worth a second look—for me, too. It's kind of the thesis of this whole blog. I'll be building on it within the next few days.
I will probably be purchasing Starbucks and/or Caribou stock in the near future. I signed up for Suze Orman's Save Yourself program--which is actually tied in with her book Women & Money, but there is nothing stopping men from signing up. Though I don't think this will be a big money-maker, it seems only fitting for my first stock purchase to be that of a specialty coffee company.
If I do opt for SBUX, I'll be hopelessly late to the party--and there's little reason for bullishness about any other coffee chain stock. Here's why: gas prices. When I researched Starbucks and Caribou stock, I noticed that they have actually followed a similar pattern over the past year. Here's what the one-year graph looks like:
Now, here's what gas prices in my hometown of Milwaukee have looked like over the same time range:
Notice anything? Both stocks took a dive in August, 2006--which is exactly when gas prices peaked that summer. Furthermore, both have been trending way down this year while gas does the opposite. Anecdotal evidence on message boards frequented by SBUX employees suggests that patrons are ordering smaller-sized drinks this summer, now that gas has gone up again.
I'd also like to suggest a twist that I haven't read elsewhere: Starbucks and (especially) Caribou have, in a sense, doubled their exposure to the vicissitudes of gas prices by expanding in areas of urban sprawl (in the former's case, these tend to be the drive-thru stores). Logically, customers at these stores will be more affected by gas prices because they drive more.
Though locating stores where auto traffic is highest is just everyday conventional wisdom in the United States, it's interesting that some good examples of companies that have though outside of this box are coffee businesses. In Milwaukee, the best example is Alterra Coffee Roasters. Two of their stores are located just off of a multi-use recreational trail that sees heavy bike traffic on weekends. A third is located close to bike routes linking Downtown to trendy Bay View and the rest of the South Side. Alterra also offers healthy food (fruit and yogurt parfaits, granola-type sesame bars) well suited to those with an active lifestyle. Interestingly, from what I have seen empirically, Alterra is the runaway most popular coffee chain in Milwaukee. It is more difficult for outsiders to gain financial information on this privately-owned company, of course.
Milwaukee's second-largest hometown chain is Stone Creek Coffee. All of their stores I've been to, while not necessarily being difficult to access by car, are not along traditional main drags. Their oldest store is in Whitefish Bay, a dense inner-ring suburb. Perhaps their most popular store is in neighboring ultra-dense Shorewood. Unless one cleverly navigates the side streets, driving to the Shorewood store is, quite frankly, a pain in the ass--precisely during weekday daytime hours, when coffee stores presumably do most of their business.
Here's where the factually-oriented part of this post ends and my opinion begins. In addition to being a coffee fanatic, I'm also pretty much a teetotaler and thus spend a hell of a lot of time hanging out in coffeehouses. I also have dispensed with having an Internet connection at home, finding that Wi-Fi at work and in-store hotspots is more than enough. What I see is that the above two outfits--the locals--are the ones where you can sit in their stores for an hour or two and not wonder how in the hell they're staying in business. (In several cases, you're wondering why in the hell they don't build bigger stores!)
In the past two years, I've most often gone to two Starbucks locations close to my apartment and a Caribou close to my parents' home. All have opened in the past four years. Business at the two Starbucks is spotty at best. (Caveat: I'm usually there in the last hour or two they're open.) The two partners will usually be busy with closing duties and talking to each other. The Caribou? My gosh, you can hear the tumbleweeds blowing through that place. Oddly enough, the Caribou often has three employees working at once.
My point is that this sort of thing happens because of some sort of artificial dynamic. I'm not even a newbie investor, but I'd guess that it's the need to open new stores at a certain rate in order to keep the stock price up. Caribou is actually owned by an Arab private equity capital firm, and I've read that there are sheiks or whoever who have consciously decided to keep pouring money into it. I think that were it not for these external reasons, a lot of these outlets would never be open. Just think of Willow Creek (see below)--the store didn't even seem to be doing particularly badly, but for whatever reason, the loss tolerance of the owners reached its limit, and that was it.
I'm hesitant to dive in and buy the stock(s) because I don't understand how the fundamentals hold up--either for Starbucks or Caribou--especially in light of the fact that we can't expect gas prices to do anything but continue to skyrocket.
Comments