Good Corporate Citizenship Good for Starbucks Stock
Starbucks Corporation (NASDAQ:SBUX) announced that it would now donate unsold meals, sandwiches, and salads to people in need in the United States, rather than put them in the trash. Humanitarian and environmental goals aside, this is a good business strategy for Starbucks that will ultimately translate to better performance for Starbucks stock.
Starbucks stock has reacted favorably. SBUX stock rose more than one percentage point on Monday, surpassing the $59.00-per-share mark.
While the company has been diversifying, looking for new growth markets and adopting mobile ordering and payment systems, analysts have maintained an overall favorable outlook with one of the key bullish indicators, same-store sales, going higher. Institutions such as Piper Jaffray hold Starbucks as one of the top picks and star performers in 2016. (Source: “Piper Jaffray remains convicted of strong performance by SBUX as the stock maintains its 2016 top pick spot,” The Country Caller, March 28, 2016.)
In its latest earnings announcement, Starbucks’ first-quarter 2016 earnings beat consensus with $0.46 in earnings per share (EPS). (Source: Ibid.) Starbucks can expect 19.75% EPS growth in 2016, higher than average for the restaurant sector in 2016. (Source: “Analyst Research,” NASDAQ, last accessed March 28, 2016.) Starbucks stock has a consensus target price of more than $66.00 per share, but some analysts see it reaching $77.00 per share this year. (Source: “Starbucks Corporation (NASDAQ:SBUX) Price Target & Recommendation,” Uptick Analyst, March 16, 2016.)
It came as no surprise that Starbucks announced its new strategy to SBUX shareholders first. Starbucks will formally take part in the U.S. national program “Feeding America,” each night donating unsold meals that are still edible. The arrangement affects all of its 7,600 stores across the United States during the next five years.
The challenge, says Starbucks, is to ensure that the end users of the salads, sandwiches and refrigerated food can still safely consume these, even if their labels suggest the products have exceeded their best before dates. (Source: “Starbucks Will Donate All of Its Unsold Food to America’s Needy,” Fortune, March 22, 2016.)
In addition to working with “Feeding America,” an NGO that runs food banks across the U.S., Starbucks will also work with “Food Donation Collection,” another group that works with to feed those who cannot afford to feed themselves by fighting against food waste and working with restaurants, cafeterias, and markets to collect unsold items for redistribution to the needy.
Starbucks can benefit from the Bill Emerson Good Samaritan Act. President Bill Clinton signed it into law and it protects establishments making food donations from being charged with criminal offences or of gross neglect. Moreover, Starbucks can write off many of the costs associated with donation programs through tax incentives. But more importantly, Starbucks can actually increase sales because of the policy.
By adopting a key tenet of “sustainable” investment, Starbucks has actually taken steps to manage new and often unanticipated environmental and social risks. These can often hurt the bottom line. The companies that pre-empt regulators on environmental, social, and corporate governance (ESG) are those that best manage their risk; ultimately, they are those that best look after the interests of investors.
In effect, by becoming one of the first companies to participate in the unsold food donation efforts, Starbucks is addressing the changing attitudes of consumers. It is raising its social responsibility profile: ever more conscious consumers—especially those in its customer demographic—will be happier to spend their money at Starbucks. This will translate to better growth and revenue numbers, which should make Starbucks investors even happier.
The ultimate reason that Starbucks is pursuing sustainability is that it is good for the bottom line. Starbucks is not just going for an image makeover. Nor is it joining some “crackpot” liberal scheme. Starbucks has merely realized that sustainability offers an excellent strategy for conducting business. It is, therefore, desirable for Starbucks stock.