With the announcement that Starbucks (NASDAQ: SBUX) chairman and founder Howard Schultz is re-assuming the role of chief executive officer, it gets real interesting. Why?
Founders know the vision and the dream better than anyone; after all, it was their idea. The landscape is littered with founders returning to the CEO role. Larry Ellison has done so with Oracle (NASDAQ: ORCL), Michael Dell has come back to Dell (NASDAQ: DELL), and perhaps the most successful, Steve Jobs of Apple (NASDAQ: AAPL). The founder of an enterprise typically has the passion and the vision to where the enterprise should be. The problem with founders is that they normally are not great managers.
Steve Jobs of Apple had to actually get fired from Apple, found Pixar, develop it and eventually sell it to Disney (NYSE: DIS) before he learned the necessary lessons to bring Apple back. His record of accomplishment will be the subject of MBA course studies, and maybe even psychology books!
With Dell, the jury is out, both on him and the company. I don't like Dell, the company, and could not understand Wall Street's enthusiasm in 2007. Dell's business is characterized by depressing margins -- never a good sign -- and Hewlett Packard (NYSE: HPQ) controlling both margins and the market share. Dell may never come back, at least not the way it is structured now.
Ellison at Oracle has acquired growth through depressed, but smart acquisitions, to build the applications business around its core database business.
And Howard Schultz at Starbucks?
I think he will make Starbucks very successful again. Why? Even though he has indicated that new store growth will slow and that under-performing stores will be closed, the passion and the culture of Starbucks will carry the day. Yes, McDonald's (NYSE: MCD) will effectively compete as it opens up coffee bars, but a tried and true Starbucks customer is not going to abandon Starbucks and go to McDonald's. Mercedes Benz and BMW are not losing business or market share because Cadillac has finally improved its product. It's a different customer. It's just another entrant in a huge, evergreen sector.
Starbucks will make it or break it by maximizing the "box"; customer service and the other little things that distinguished Starbucks in the first place will return. McDonald's customers don't ever mention their "relationship" with the personnel at the local McDonald's.
Starbucks will resume as a growth stock because soon, after the smoke settles, the Street will realize it has room to still double to triple its store base globally. That's huge and compelling.
Wall Street will embrace Howard's return, no question, but he has to deliver the growth that investors were accustomed to a few years ago. The stock is trading at $19.50-20.50 and the risk-reward looks very favorable at these levels. He will re-energize the "partners" at Starbucks. Starbucks has better benefits and loyalty than McDonald's employees. That will only get better.
So Howard, welcome back and enjoy this honeymoon period for the next couple of quarters. Make sure you clearly lay out the vision and game-plan for investors, and the money will follow...
Georges Yared is the CIO of Yared Investment Research and the author of "Stop Losing Money Today".
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Reader Comments (Page 1 of 1)
1-08-2008 @ 4:58PM
wily said...
I don't see anything exciting here and a 1.48 pop means neither did many other people or the big investment firms.
1-10-2008 @ 1:23PM
John said...
Should SBUX worry about MCD? Not on your life! Consider the average female customer like my Wife, takes 13 words to describe her drink. The average server at MCD is not going to be able to handle that! They simply don't speak English that well, and I am talking about the kids who were born and educated here! The SBUX effect on MCD is great for both companys! MCD will be priming their customers for the SBUX experience. Better coffee at MCD will help them as well. Better is just that, better. Like the law of advertising: If Chevy advertises, they sell more cars, but so do Ford and Dodge! Advertising gets people thinking about buying, then they buy their preference.