After dropping from $64.00 to $54.00 at the start of February, Starbucks Corporation (NASDAQ:SBUX) is breaking through its resistance level of $59.00, coming close to breaking SBUX stock’s all-time high price of $62.61 set in October 2015. Starbucks stock is getting strong support after confirming its plans to expand in Italy.
Starbucks Opens in Italy
Starbucks is embarking on one of its most significant challenges ever. It is finally entering the Italian market. Starbucks plans to open its first Italian outlet in Milan by 2017.
However, Starbucks is not treading into the homeland of espresso and cappuccino carelessly. The Seattle coffee giant has formed a partnership with local firm The Percassi Group. Percassi manages a number of foreign brands such as Zara, Polo Ralph Lauren, and Victoria’s Secret, which have a limited presence in the Italian market. Starbucks and Percassi will likely use the Italian chain Autogrill—which already manages several Starbucks locations in Europe—to start SBUX stock’s Italian adventure.
Starbucks has already established a major presence in Europe. Yet, competition with local establishments and beverage/food habits has limited its success in the old continent. Starbucks first entered Europe in 1998, via the U.K. It now has some 2,400 stores in Europe, the Middle East, and Africa. These account for 10% of its total turnover.
Italy presents many challenges for Starbucks, with its tradition for coffee. After all, the very term “barista” is Italian. In Italy, you visit a bar far more often to have an espresso or cappuccino, perhaps with a croissant or similar, than a dry Martini and an olive.
Starbucks’ model is different. Italians know Starbucks through their experiences abroad. Starbucks has long resisted the Italian market because of the widespread presence of bars, where you can have coffee and cappuccino at prices far lower than what it offers. Much has been said about the difficulties of breaking into the “Italian tradition” of coffee, which is more intense in Italy than in other countries.
Is this a risk for Starbucks stock? No, Starbucks coffee shops are actually very different places from the average Italian bar. Starbucks promotes the “extended” experience. You can stay and spend as much time as you like. In an Italian bar, patrons drink their coffee quickly, standing up and leaving within minutes of ordering.
But, if Facebook trends are a valid indicator, many Italian groups asked Starbucks to open Italian locations in various “groups.” Success in Italy could be the catalyst of even higher sales in the rest of Europe. This could propel Starbucks stock toward a new high. Starbucks has much to teach Italians from the business perspective. Free Wi-Fi, a variety of menu items, and the promise of a pleasant break with friends or colleagues.
There is no word on whether Starbucks will be offering muffins, bagels, superhot American-style coffee and brownies, but if Italian customers do not warm up to those items, they will certainly appreciate the free Wi-Fi. While the company’s revenue can expect minimal revenue growth, Starbucks stock should gain considerably. Italy is to coffee what stocks are to Wall Street and Starbucks stock will gain many “bucks” from its Italian expansion.
Where Starbucks can really draw business is with tourists and expats. They might not be familiar with the best-priced and best-tasting coffee providers in Milan, where there are myriad espresso bars. The Starbucks’ sirens (from the logo) will offer a reassuring relief to travelers seeking a caffeine fix. They will also draw curious locals.
Starbucks stock has already been trading at record-highs, climbing steadily from about $40.00 per share to $60.00 per share in just 12 months. Italy can help get Starbucks’ stock reaching new heights, faster.
The Bottom Line on Starbucks Stock
In fact, it was in 1983, during a trip to Italy, that Starbucks CEO Howard Schultz came up with the idea of introducing Italian coffee to America. (Source: “Grounds Zero: A Starbucks-Free Italy,” Bloomberg Business, February 9, 2012.) But, not only did Shultz adopt the coffee beverage, he noticed the coffee culture, which blends good flavors with social interaction and reading (people reading morning papers and sipping espresso in bars remains a popular morning sight in Italian cities).
Therefore, the Italian debut is a big moment for Starbucks and Starbucks stock, which should get a caffeine-like jolt from the exposure.