Starbucks looks to health-conscious consumers

The company's shift is causing investors some concern, but the menu looks better.

By Stock Traders Daily Aug 9, 2013 5:45PM

A Starbucks Corp., sign is displayed outside a coffee shop in London, U.K. / Chris Ratcliffe/Bloomberg via Getty ImagesBy Neal Rau, Stock Traders Daily

 

Starbucks (SBUX) is doing their best to attract a more health-conscious consumer, but the stock has already run, it is at resistance, and that causes investors some concern.


In recent months, SBUX has introduced a range of healthier menu items, including salad bowls with flavors such as zesty chicken and black bean. The newer menu offers healthier choices that would appeal to their customers who might order a "skinny latte," for example. Food represents approximately 19% of Starbucks' revenue, and contributes 2% of the 9% U.S. comp growth. Over time, the entire U.S. system will have the new food platform, and the long-term target is to generate up to 30% of Starbucks sales from food.

 

The stock has made a big run this year, up over 34% YTD and up over 360% in the last 5 years. If investors see any potential weakness, they are going to be looking to take profits. Stock Traders Daily has SBUX strong near-term, but the stock is in play because it is testing long-term resistance; if resistance holds the stock could reverse all the way to longer term support.

 

One particular healthy new food item that stands out is Greek yogurt, which they will be offering in stores as early as spring 2014.


SBUX announced plans to strategically align with French yogurt maker Danone and create yogurt products labeled with the Starbucks-owned Evolution Fresh brand.  Yogurt is the nation's fastest-growing snack food, a $6 billion business. Sales of all yogurts in the U.S. increased 6.1% to $6.3 billion in the 52 weeks ended June 8; however, sales of the Greek-style yogurt surged 48% to $2.65 billion during the same period. The Starbucks / Danone yogurt products will be sold under the Evolution Fresh name. The first product will be a ready-to-eat Greek yogurt parfait to replace a Greek yogurt with honey parfait currently sold in Starbucks stores.

 

Starbucks is faced with serious competition from big companies like Dunkin Brands Group (DNKN), McDonald's Corporation (MCD) and Green Mountain Coffee Roasters Inc. (GMCR). During the last recession, MCD hurt SBUX by offering a lower priced coffee alternative with McCafe. Now with the recovery in the economy, SBUX is offering new food items that will appeal to their more health-conscious adult customer, who might not mind spending a few dollars more for a healthy snack. Greek yogurt is widely considered a healthier snack, and you see it everywhere now in the yogurt section of grocery stores. It is probably more of an adult snack but that would appeal to the SBUX type of customer.

 

As a health-conscious SBUX customer, I rarely order food because the healthy food choices are so limited.  It does not make sense to sacrifice taste by ordering a mocha-light and then adding a muffin with 400+ calories. I might be tempted to eat a Greek yogurt or salad, though. In Hawaii, where people are very health conscious, half the drink orders I hear the barista’s calling out are of the skinny variety.


Restaurants like Panera Bread Company (PNRA) have been very successful in appealing to the health conscious consumer. SBUX already has those customers in their store but, until now, they have not offered food items that make sense. Who knows, you might be ordering a combo meal at SBUX like a healthy salad, Greek yogurt and mocha-light sometime soon.


The stock has a lot of momentum right now and other catalysts for more growth, like the Asian markets. The opening up of 523 stores in the China in the last 12 months has helped Starbucks increase its revenue by as much as 29% from the Chinese market.


However, after such a big run in the stock, investors should keep a close eye on resistance levels. A reversal to long-term support might even bring a buying opportunity.

 

MSN Money on Twitter and Facebook

Like us on Facebook: MSN Money and Top Stocks

Follow us on Twitter: @msn_money and @topstocksmsn

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

122
122 rated 1
288
288 rated 2
472
472 rated 3
638
638 rated 4
628
628 rated 5
704
704 rated 6
609
609 rated 7
489
489 rated 8
275
275 rated 9
129
129 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
CTSHCOGNIZANT TECHNOLOGY SOLUTIONS10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
ITUBITAU UNIBANCO BANCO MULTIPLO S.A.10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.