Starbucks: Innovation in a Cup of Coffee

corporate earningsThere are many criteria an investor should look for when putting their money into a stock. One of the most important is the investment strategy that will drive corporate earnings. When it comes to bigger firms, the flaw many companies have is a lack of innovation, which slows corporate earnings growth with a stale investment strategy. One company that has continued to buck that trend is Starbucks Corporation (NASDAQ/SBUX).

Starbucks started out in Seattle and is now branched across 50 countries operating over 9,000 stores with almost 5,000 more licensed locations. The growth of its corporate earnings has been stellar over the years, as it has continued its innovation as a key investment strategy. One of the reasons I either follow a stock or do not is based on the company’s management and my belief whether or not they can continue their corporate earnings growth. That can only be achieved through innovation as a core investment strategy.

While Starbucks wasn’t the first coffee chain to make a cappuccino, its move across the nation to popularize the high-end coffee market was a great investment strategy. Just as McDonald’s Corporation (NYSE/MCD) wasn’t the first burger joint, its corporate earnings growth was based on other factors, such as a consistent product and the location of retail outlets.

Starbucks has now moved into a totally new venture by partnering with Krueger to make single-cup coffee machines. The single-cup coffee market should prove to be a strong driver for corporate earnings growth for Starbucks, as margins are generally quite high and the company is able to build on a fabulous brand. This ability to translate a solid brand and monetize it will prove to be a great investment strategy. This also will hurt the corporate earnings of firms already in this market, namely Green Mountain Coffee Roasters, Inc. (NASDAQ/GMCR).

Anytime a market leader decides to enter a sector against a smaller company, the bigger firm has several advantages. A better-known brand name, for one, is a huge advantage. Its retail stores with clients who are essentially addicted to Starbucks make for a very loyal customer base. A loyal base provides consistency of corporate earnings visibility. I will be excited to see what type of numbers this new division will generate for Starbucks’ corporate earnings after the initial roll-out.

Starbucks is also trying a new initiative in some stores by selling beer and wine. By adding products that might be preferred later at night, this could add some incremental income, depending on its success, which might have a positive impact on the company’s corporate earnings. This is a sign that Starbucks is not afraid to try new products and I love that investment strategy. Thinking outside the box to reach into new markets is a great way to expand your corporate earnings. The firm is even looking to add cheese plates and flatbreads to some stores. This initiative is only starting at a few select locations in the U.S. and some other countries like Spain.

Starbucks isn’t stopping there, as it just announced that it is moving into the juice market with its opening of an “Evolution Fresh” store, which will take on the much smaller firm Jamba Juice. Starbucks bought a juice-making firm and is expanding on just selling these products through other retail outlets. This is yet another innovative move to try and expand its broad public appeal in totally new markets. The advantage Starbucks can offer is that since it is an established and successful retailer, it should be able to leverage its logistical infrastructure to these other markets. If any of these investment strategy initiatives take off in any way relative to the core brand, then we’re looking at another decade or more of consistent corporate earnings growth.