Traveling without moving

Thursday afternoon, while working on my laptop at a local Starbucks, I ended up having a conversation with a couple nearby. It turned out they were from Paris, in the U.S. on vacation. Nothing too odd about that, but this particular Starbucks was tucked into a stretch of U.S. Route 46 chockablock with hubcap shops, fast food restaurants, hourly-rate motels, used car lots, a couple of BYO strip clubs, and a recently-demolished massage parlor. I go to that Starbucks sometimes because it gets a lot of late afternoon sunlight, but it's not somewhere I'd think of taking friends from out of town. Not exactly a tourist hotspot.

The couple explained that they had taken a year off to travel around the U.S., and had bought a used minivan (for $3k) at a used car lot near that Starbucks last spring. Now they were back after circling round the country and taking a detour into Mexico. They were planning to drive up to Canada for a couple of weeks to renew their tourist visas, but first they wanted to take their new American friend -- the guy who sold them the minivan -- out for a nice French dinner.

They asked if I knew any good French restaurants and I gave them a few ideas, and then let them borrow my laptop to book a hotel for the night. The husband gave me his business card: back in Paris he's a rédacteur en chef of a magazine. His wife was an editor too. The night before, I had been arguing with Trumwill on his blog that the class distinctions he and one of his guest bloggers frequently make are mostly pointless, partly because the demarcations they try to draw are so porous. And here, as if to underline my point, were two Parisian journalists befriending an American used car dealer.

Recently, on the 4HWW forums, someone mentioned CouchSurfer.org, a site built to connect couch surfers with hosts willing to let them sleep on their couches. In one of the testimonials on that site, a host said that hosting a foreign couch surfer was like "traveling without moving". Meeting that French couple in the Little Ferry Starbucks reminded me of that line, which in turn reminded me of where I'd first heard it: in Dune. Embedding is disabled for this one, but click the link and see 1:47-1:57 of the clip.

Dune: Folding Space

What's with the music at Starbucks?

Sitting in one now doing some work on the new site, and they are playing something that sounds like Celtic Woman on suicide watch.

Late Scone Availability as a Bearish Indicator for Starbucks

I'm writing this from a local Starbucks, and it's quiet enough here that I overheard someone inquiring about a blueberry scone in the pastry case. Last year, the scones tended to sell out here (and at other local Starbucks stores) by early afternoon. There's also Top Pot¹ apple fritter sitting in the case. That's another morning item that would typically sell out before the early afternoon.

The image above, of the blueberry scone, is from Flicr.


¹The Top Pot locations in Seattle have great coffee and fresh donuts, by the way. Too bad there isn't a local chain like that here. I think it would do well.

Getting a Better Cup of Coffee at Starbucks

Next time you go to a Starbucks with a friend, order a "Coffee Press" instead of a drip coffee from one of the big urns. You will pick whichever type of whole beans you want, and the Starbucks folks with grind them and brew them for you in an 8-cup thermal French press like the one shown above. At my local Starbucks this costs $3.50 before tax, which is less than the cost of two "grande" (16 oz) cups of coffee.

A couple of related items:

Two weeks ago, the Financial Times featured an article about Starbucks detailing how Howard Schultz built the business and how he has been dealing with its current challenges, "When the coffee goes cold".

Today, an American history professor made an interesting point in response to that article in a letter to the editor of the Financial Times, "Starbucks is a victim of its own success". The professor's point was that Starbucks introduced people to "the possibility if not the reality of excellent coffee", i.e., it raised the bar for coffee and opened a market for even better coffee served by local coffee shops with which Starbucks can't compete at the high end, and Starbucks has already saturated the market up to the high end (at least in the U.S.: China and other international markets present growth opportunities for Starbucks).

ThinkEquity's Ten Commandments of Research

A post about Edelheit is coming up next, but since that post will refer to ThinkEquity's Ten Commandments of Research", I figured I'd post those ten commandments separately first. These ten commandments (listed below) were also mentioned in the book Finding the Next Starbucks: How to Identify and Invest in the Hot Stocks of Tomorrow (pictured above), by ThinkEquity founder Michael Moe.

1. Be right on the fundamentals.
   
   

   Earnings growth drives stock price. There is essentially a 100% correlation with how a company does and how its stock performs over time.

   
   
   
2. Be Proactive — Not Reactive.
   

   Reporting what happened is what a news reporter does. We get paid to look over the horizon and around corners.

   
   
   
3. When in Doubt — Get it Out.
   
   

   The difference between value-added information and a commodity could be minutes.

   
   
   
4. When Wrong — Admit it.
   

   The best investors and analysts are wrong a lot. The worst thing to do is rationalize a mistake. Be intellectually and morally honest.

   
   
   
5. The Cockroach Theory.
   

   You seldom find just one cockroach in a kitchen. Likewise, if you find a problem at a growth company, there are always more behind it. It's rarely a one-quarter issue — the first loss is the best loss.

   
   
   
6. Research is About Information and Insight.
   

   Information is valuable if it is proprietary. Insight is valuable if we know what that information means.

   
   
   
7. The 4 P's are Key for any Successful Growth Company.
   

   People, Product, Potential, Predictability. The first "P" (people) is the most important.

   
   
   
8. 5 Independent Sources for Each Initiation of Coverage.
   

   We will have regular dialogue with company management, but they will always see the glass as "half full."

   
   
   
9. 3 Main Reasons for a Stock to Move Up or Down.
   

   In addition, we will identify near term catalysts for price movements.

   
   
   
10. Make Clients Money — and everything will take care of itself.
    

    ThinkEquity investment philosophy is that over time, revenue and earnings growth is what drives company valuations. Our ultimate goal is to identify companies that have high and sustainable earnings growth.

    
    

Saving Money at Starbucks

Today Starbucks is offering free tall coffees to anyone who says they voted¹. Here's another way to save money at Starbucks, similar to the one we mentioned in a recent post ("Lobster Rolls in Lean Times"). Costco sells $100 in Starbucks gift cards for $79.99 (similar to the deal it offers on McCormick & Schmick's gift cards). Starbucks also offers a gold card now, that gives holders a 10% discount on most purchases. If are a frequent-enough Starbucks customer, you probably received a free gold card last month (if not, you can buy one now, or get one free with a Starbucks affinity credit card deal). You can combine these discounts by transferring balances from the Starbucks cards you bought at Costco to your Starbucks gold card. Then you'll be getting an effective 30% discount on your Starbucks purchases<sup>1


1</sup>Ben & Jerry's is offering a similar deal from 5pm-8pm today ("Democracy never tasted so sweet").

²If you bought the Starbucks gift cards at Costco with a Costco American Express card, you'd get 1% cash back on the purchase, so your effective discount would be 31%.

Still Stranded

Same shot, a couple of hours later.

Stranded at Starbucks

Pouring rain in North Jersey today, courtesy of Tropical Storm Hanna, apparently. Could be a lot worse, of course, but by the time these storms get here, their destructive winds have usually died down. Above is a photo, taken a couple of hours ago, of the parking lot at the local Starbucks from where I'm posting this.

Starbucks

There have been some bearish articles about Starbucks this week, after the company announced plans to close a total of 600 under-performing stores and lay off 12,000 workers (hopefully, the Starbucks I am sitting in now won't be one of the stores that gets closed). The company is certainly facing two negative macro trends: rising input costs (milk, coffee, etc.) due to the Ag boom, and the weakness of the U.S. consumer (due to what I call the four horsemen¹ for short). Given those negative macro trends, I wouldn't buy SBUX here, trading at an enterprise value/estimated forward earnings multiple of nearly 18x.

That said, Starbucks management does seem to be making some smart course corrections to its business. In addition to the recently announced cutbacks in their over-saturated U.S. market, an article in the WSJ earlier this week ("New Brew Attracts Customers, Flak") indicates that the new Pike Place Roast has been successful in increasing sales of drip coffee in Starbucks stores by (if memory serves -- I read this in the dead tree edition earlier in the week) 5%-15%. Most of that WSJ article is behind a subscription wall, unfortunately, but the bottom line of it was that -- despite vocal protests by fans of bold coffee -- sales are up with the new brew. So it looks like this was a smart move.

Perhaps Starbucks will be worth considering as a potential investment in a couple of years, if most of the negative macro trend of U.S. consumer weakness is behind us then, and the company is trading at a lower EV/forward earnings multiple. Maybe the stock will be a buy then, when it's trading in the single digits.

¹High debt levels, lower access to credit, high energy prices, and the negative wealth effects due to the real estate bust and the struggling stock market.