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Starbucks Is Set to Adapt to an Evolving Industry

Management's initiatives in the U.S. and China help to reinforce our wide moat rating.

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Heading into  Starbucks(SBUX) 2018 investor day, we were looking for three things: (1) evidence that the in-store experience, beverage innovation, and digital engagement improvements driving recent U.S. comparable-store sales growth will continue; (2) an update on the consumer and competitive environment in China; and (3) any changes to the algorithm that makes Starbucks one of the more intriguing long-term shareholder return stories in the consumer sector.

With respect to the United States, we were encouraged by a back-to-basics approach to store operations and automated inventory, which should allow for greater customer engagement, and a beverage pipeline that should drive increased frequency. We are also encouraged by several new store layouts--including the new 23,000-square-foot New York Roastery but also drive-thru and express formats--that better isolate and address consumers’ “convenience versus experience” needs. China remains competitive, but we are optimistic about Starbucks’ long-term potential there due to the Alibaba partnership that unlocks new growth avenues and the brand’s ongoing connection with younger Chinese professionals. Management’s initiatives in the U.S. and China help to reinforce our wide economic moat rating.

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R.J. Hottovy does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.