1 year Bear case

Bear case

• Recent announcements by CEO about getting back to the Starbucks way are vague. Claims about improving customer experience by bringing back quicker service and improving in-store experience but also announcing job cuts and focus on online orders are not compatible. Stopping non-customer use of store washrooms and wi-fi while cutting staff could also be a challenge.
• Recent unionized staff walkouts are a sign of employee dissatisfaction. Putting significant changes on a reduced workforce may exacerbate this issue.
• Revenue has been buoyed by increases to pricing, this is unsustainable especially with 2025’s stretched consumer. Credit card debt is at record highs and recently defaults jumped to highest level since 2008 crisis.
• Coffee prices are at record highs and show no signs of turning lower. Starbucks claim of focusing on high quality coffee during a time when sourcing high quality beans at a competitive price is extremely challenging.
• The trend in coffee shops, as a product and experience itself, is moving away from Starbucks with its large corporate fast-food like offering. A large chain like Starbucks will have a hard time creating stores that are unique community hubs.
• International expansion in India has been curtailed due to inflationary pressure on retail spending. China’s economy is also in trouble and so reasonable to expect a slower growth in Starbucks presence there, as well as lower revenues.
• CEO is committed to cost cutting by reducing executive level overhead, reducing storefront workforce and shrinking drink offerings. Reduced staffing will likely present issues, as discussed above, and Starbucks has come to fame for its offering of individualized drinks - this may impact customer demand and will also eliminate some high priced drinks.
• Sugary cold drinks have been a big seller. The trend away from these with more health conscious consumers and now a MAHA push may impact these sales.