Starbucks (SBUX) the stock has really cooled this year due to weaker results and persistent labor shortages. Without a doubt, the big resignation, as it’s been called, has hit the larger quick-service restaurant space, and even industry greats like Starbucks are not immune. Even though the company offers better payouts and benefits than most of its competitors, Starbucks has suffered.
Staff shortages have led various Starbucks locations to attract new workers with higher wages. Indeed, such upward wage pressures will weigh on profitability in the medium term, but investors need not worry because Starbucks has a plan. The company has shown its willingness to test creative store concepts to help strengthen the operating margin trajectory over the next several years.
Starbucks is one of the most tech-savvy coffeehouse chains, after all. For this reason, I am bullish on SBUX stocks on recent weakness. (See Starbucks stock charts on TipRanks)
Starbucks and Amazon team up, and it’s big business
Last week, the company shed light on its partnership with e-commerce giant Amazon (AMZN), opening its first store without a cashier in New York. It looks like something between a Starbucks coffee shop and an Amazon Go mini-grocery store.
A symbiotic relationship between the two Seattle-based companies, through the automation of various tasks, could have the potential to be considerable as the number of employees required to serve a population decreases. Indeed, if such a concept of a hybrid store equipped with technologies proves to be promising, it could help to significantly improve the fundamentals of both companies as they seek to pivot to adapt to the new era in order to fight costs. higher wages.
Higher wages tend to lead to fewer jobs, and the automation of work could accelerate the trend amid the Great Resignation.
Amazon has the innovative technologies, with frictionless payments that allow a limited staff, while Starbucks has the big brand that can attract customers to its doors. If the New York store is a success, we can bet that the two firms will try to introduce the store concept in new markets, lowering the number of employees per store.
The Starbucks of tomorrow is worth betting on today
Without a doubt, the COVID-19 pandemic and rising wage pressures have prompted many quick-service restaurants to embrace next-generation technologies.
Indeed, delivery, drive-thru, and digital (the three Ds, as they’re often called) have been keys to thriving as a restaurant amid the ongoing pandemic. Starbucks has done a great job of bouncing back from a hectic 2020, thanks to its strength in digital.
Delivery and drive-thru were more difficult areas for Starbucks. This is due to a lack of infrastructure before the pandemic, compared to a fast food company like McDonald’s (MCD).
Either way, Starbucks has shown that it is not afraid to take drastic measures to strengthen its prospects for long-term profitability. The company closed many of its less profitable stores last year, especially in the Canadian market, as remote and hybrid work environments have led to fewer coffee groceries at local Starbucks.
Arguably, Starbucks had a harder job to do to adjust to the new normal. As the economy reopens, Starbucks is poised to pick up where it left off before the pandemic, but there is a new list of challenges in rising wage pressures. As conditions normalize and new concepts show more promise, I wouldn’t be at all surprised to see the number of stores increase, both at home and abroad.
For now, Starbucks is raising wages well, but it has a longer-term plan to get the profit outlook back on track. The announcement of the new store concept had a rather muted reaction in SBUX stock, which barely budged, with AMZN stock breaking above 4%.
Only time will tell if the New York store takes off, but there’s not much to lose for either of the Seattle-based companies as they seek to help each other overcome the pressures. wages on the rise.
The Taking of Wall Street
According to the consensus rating from TipRanks analysts, SBUX stock is a buy. Out of 22 analyst notes, there are 14 buy recommendations and 8 keep recommendations.
As for price targets, Starbucks’ average price target is $ 124.24, which implies a 12.15% hike. Analysts’ price targets range from a low of $ 105 per share to a high of $ 142.00 per share.
Disclosure: Joey Frenette owned shares of Starbucks at the time of publication.
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