Apr 2, 2020 Luckin' Coffee plunges 76% because it made up its sales number (#fakebrews) Read More Venti-sized bad karma... In under 3 years, Chinese-owned Luckin' Coffee managed to beat out Starbucks for the role of "Biggest Coffee Chain in China." With around 4.5K sleek shops, scooter delivery, and adorable coffee cups featuring deer silhouettes, what could go wrong? On Thursday, Luckin lost over 75% of its value, nearly $5B. That sort of thing tends to happen when investors find out your sales numbers are fake.
So 2019 was all a lie? Not a text from your ex. An internal investigation into Luckin' revealed that its COO made up the company's 2019 sales numbers. Creativity in business is great — not so awesome vis-a-vis financial numbers.
$413M: What Luckin' reported as its net sales for the first 9 months of 2019.
$310M: The difference between the lie and the truth. If the investigation's findings are correct, Luckin' actually made only $103M in sales — the rest was fake brews.
The red flags were there... and some spotted them early, thanks to an anonymous 89-page report with on-the-ground research from whistleblowers that reads like a John le Carré spy novel:
1.5K employees were secretly mobilized to monitor the volume of sales through 25,843 receipts and 11,260 hours of video footage.
"The Smoking Guns" (the report's own words) = individual store sales were inflated by at least 88% during the end of 2019 (and fudged for the whole year)
"The Red Flags" (also their words) = Luckin managers have already sold half their Luckin stock — and the CMO was previously sentenced to 18 months in prison.
Back in Jan, short-seller Muddy Waters Research said it had bet against Luckin' stock after receiving the page-turner report, which it believed was credible.The Takeaway:Bad national PR... This is a bad look for Chinese public companies, which some investors were already skeptical of because of China's reputation for unreliable economic data. But Luckin' IPO'd on the Nasdaq, is not gov-owned, and is regulated by the SEC, so this spill was more of a surprise. Mar 18, 2020 Starbucks is confidently BYOD'ing — buying 40M of its own shares back Read More It's a BYOD event... "Buy The Dip" refers to a strategy of buying stocks when their prices are low (taking advantage of "sale" price), and eventually selling if the prices rise (quick reminder: they can fall, too). Starbucks is kind of doing the same thing, but with its own stock — we're calling it: "Buy Your Own Dip" (not to be confused with Superbowl-related "bring your own dip").
Starbucks will buy back about $2B of its own stock from investors.
In the past month, Starbucks' stock price has fallen nearly 40%. Hence, the dip.
FYI, by splurging on its own shares, the coffee legend reduces its assets (cash) which can boost its return on equity.
Stock buybacks are (kind of) like gifts to shareholders... By buying back a large amount of its own shares (reabsorbing them), a company can improve its stock's price because the number of shares outstanding falls. The fewer shares are out there, the more your ownership/earnings per share increase. Another way to reward shareholders is through paying out dividends to them.
In 2019, Starbucks reportedly returned $12B to its shareholders through dividend payments and repurchases of 140M shares.
The 40M shares Starbucks is now buying back make up around 3% of its outstanding total (and would cost around $2B at the current stock price). Might not be the best time to make multi-billion purchases buuut...
The Takeaway:Starbucks is flaunting its confidence... when no one else is. Nervous companies are cancelling buybacks and dividend payments — the biggest American banks already cancelled buybacks on growing concerns that the virus will hurt business and cash could be tight in the future. But for those who can swing it, buybacks are easier/cheaper when the stock price is low. Even mid-outbreak, Starbucks is optimistic in its:
Stores: Starbucks has banned sipping-in but will still let you take coffee to-go or drive thru in the USA and Canada. Also, 90% of its China stores are now reopened.
Delivery: Its new partnership with Uber Eats will be available nationwide by end of April. Nice timing. Mar 17, 2020 The FTC Economy (“Flatten The Curve”) is led by private biz in a big way Read More "FTC" is becoming a solidarity slogan... Before mandated government shutdowns, American companies and citizens independently took initiatives to "flatten the curve" of the COVID-19 outbreak — aka, reduce the number of infections so that our healthcare capacity can handle them. Most countries are taking the FTC approach:
Pros: Social distancing and closures mean fewer infections, fewer deaths, and healthcare systems not overwhelmed by a dramatic spike in cases.
Cons: The economy is devastated by biz slowdowns, the peak of the outbreak happens later (and dies down later), and could repeat if widespread immunity isn't developed.
Bottom Line: The opposite approach is "herd immunity" — allowing for a large part of the population to be infected — which risks disastrous consequences for the elderly and people with compromised health. So...
The grassroots spirit takes hold... “The health of a democratic society may be measured by the quality of functions performed by private citizens” — Tocqueville said it, and American individuals/companies are still practicing it, decidedly acting to make flattening the curve possible:
Social Distancing: WFH has become the norm and social media is rife with self-imposed "stay home" content — risk being "social shamed" for posting a story at a bar.
Corporate Closures: Nike, Lululemon, Apple, Vail Resorts, and other companies closed their businesses from the public before the government mandated them to do so — and Starbucks went takeout-only nationwide before NYC required it.
The Takeaway:FTC has us walking a very fine line... Small/medium sized businesses and hourly wage workers are majorly hurt in this FTC economy — no foot traffic = no sales = no work for hourly workers. Private companies have implemented ways to soften the blow and provide relief for those who can't afford to stay home when they don't feel well or when their bosses tell them to:
Grubhub waived commission fees (which can be as much as 30%) for many mom & pop restaurants that are suffering right now.
Darden Restaurants is providing paid sick leave for all its hourly workers who weren't covered.
Starbucks announced a financial support solution for any US baristas who may have been exposed to the virus — Lyft is also doing this for drivers. Sep 10, 2019 Starbucks is whipping up its 1st pickup-only store — that's a big deal Read More No talky until coffee... Starbucks is making it possible — CEO Kevin Johnson sat down with Bloomberg to reveal a pick-up only store is in the works for NYC this fall. Picture NASCAR pit stop meets barista nightmare — Starbucks is targeting "people on the go" (aka all humans in Manhattan) because even pre-orders face lines lately. Other key deets:
The where: If NYC goes well, Starbucks will export the concept to LA, BOS, CHI, SEA, and SF.
The what: PSL, coconut milk lattes, frapp-a-anything — you name it, pickup-only Starbucks serves it.
The $$$: Pickup-only could become Starbucks' #ProfitPuppy — Coffee sales will bring in the same revenues, but at lower costs (less real estate & employees).
If the Starbucks mobile app had feelings... this would be its dream. The pick-up concept blends deliciously with the Starbucks app's growth — usage has surged to hit 2 shocking numbers:
17.2M = that's how many Americans use the app
40% = that's how much of Starbucks' sales came from app orders (QR-code for the win)The Takeaway:American companies are now inspired by Chinese ones... This wouldn't be Starbucks' 1st pickup location — it launched the same concept in China last summer as "Starbucks Now." It made that move because local Chinese rival Luckin Coffee pioneered the concept across the Great Wall, jumping to 3K locations in under 2 years (Starbucks is barely higher at 4K China stores). It's an early example of American retail copying Chinese competition. Aug 14, 2019 The Starbucks of China plummets because it's actually a tech company Read More But first, coffee (earnings)... The "Starbucks of China" is already on track to pass Starbucks as the top espresso chain in tea-thirsty China this year. But just 3 months after its IPO in the US, Luckin Coffee shares dropped 17% after its first-ever earnings report. Before we get into why, get to know Luckin and its Bambi-ish logo:
Gen Z lattés: Luckin was born mobile-first — In its three years of existence, its focus is small stores where you order ahead or order delivery with the app.
Growth mode: Fast. Sales jumped 648% last quarter as it opened 593 new spots in just the last three months to hit 2,963 total (vs. Starbucks' 3,922 in China).
It's a homebody: Luckin hasn't applied for a passport yet (but did just sign a deal for Middle East expansion). Its market value is 1/20th of globally-minded Starbucks.
How does Luckin take its coffee?... With other things now. The biggest update in Luckin's earnings was its moves outside the bean. It's now letting customers order food via app and it's dabbling in vending machines to save on real estate costs. Plus, to poetically "capture different consumption moments," it's now doing Luckin Tea.The Takeaway:Is Luckin' a tech company or a coffee company?... Yes. Both. But investors think it's behaving too Silicon Valley, so they dropped the stock. Luckin has aggressively cut prices of a cup of coffee to compete with Starbucks, which could be unsustainable. But that's kinda a tech move — no different than Uber or Lyft dishing out discount codes for rides to get you on their apps. Jul 24, 2019 Starbucks may start selling its mobile app knowledge to restaurants Read More Technically... the coffee chain reports earnings tomorrow. But we thought this storyline was more interesting: Starbucks wants to turn its app brilliance into a monetized revenue stream. It just invested in tech startup Brightloom with plans to build a software service that covers all the back-end mobile needs of a restaurant.
"Waiter, we'll take it all to-go"... That's the idea for Starbucks — mix together all the core elements of a successful mobile app into a single product, then serve that up to other chains through Brightloom. Here's what the service could include (and who it could replace):
Loyalty program: LevelUp is the app currently handling your fast-casual loyalty points with some chains, including Just Salad and Pokéworks.
Mobile payments: Square is the preferred payment enabler of your local fancy-bean coffee shop.
Customer relationship management: Salesforce is the global giant of CRM software so your go-to spot knows your "the usual" order.The Takeaway:Quote the Joker on this one... “If you’re good at something, don’t do it for free." Starbucks' app has become your best friend's true best friend — 17M Americans are using it, and 40% of Starbucks' US sales happen through it. Starbucks could make money off this venti-sized opportunity — 69% of US restaurants don't even accept mobile payments currently. An app though is crucial for speeding up the line, incentivizing loyalty, and learning more about customers. Jun 26, 2019 Starbucks and Dunkin' hit record highs — And they're using the same 4-part strategy Read More Treat yo' self... A pair of coffee stocks are enjoying record highs — Dunkin' is up 29% this year and Starbucks has risen 30%. An analyst who doesn't even drink coffee (more of a "tea and hot chocolate" guy) just upgraded where he thinks Dunkin's shares can go thanks to a 4-part java strategy.
"I'll have what she's having" — Starbucks... It looks like Dunkin's rival ordered the same 4-part coffee growth plan:
Streamlined menus: The faster customers can figure out what obscure Arabica bean combo they want, "the happier they'll be" (according to one of Starbucks' menu engineers).
More espresso-based drinks: For the 1st time ever, consumers under 35 drank more espresso drinks (like lattés) than hot drip coffee, in 2017.
Super loyalty programs: We're talking "MCommerce." Mobile commerce. The ability to see a full menu, order ahead, and gamify buying with rewards leads to orders that are bigger and more frequent.
Tech delivery partnerships: Both coffee brands signed delivery deals with Grubhub.The Takeaway:Coffee consumption isn’t a commodity... Oil, copper, coffee — All commodities because they aren't differentiated (one bean's pretty much the same as another). But coffee-buying experiences are different. Through apps, delivery, and Zombie Frappuccino, Starbucks and Dunkin' can charge a premium for coffee, thereby un-commodifying it. Jun 11, 2019 Starbucks tests reusable cups in London Read More Leave no trace... Starbucks is testing out a reusable cups system at Gatwick Airport in London (and taking its Boy Scout commandment very seriously). Here's how it works:
The pickup: For one month, a Starbucks will charge 5 pence for a paper cup, or you can drink from a reusable cup for free.
The dropoff: There are 5 tubs around the terminal where you can drop your empty chalice. The press release makes it seem like there's no punishment if you forget to drop off (or steal) the cup (besides shame).
The cleaning: The airport waste staff collects and tosses them in the dishwasher.
The reason for it all: Starbucks uses 7M cups at that terminal each year. It says it can save 2K paper cups per month. Reminder: Paper cups are made of trees. It will take its learnings from here to scale beyond one single airport terminal.
One cafe latte with room for responsibility... Starbucks is killing-off plastic straws, has increased pay for employees, and put its employees through discrimination sensitivity training within the last two years. It's all to convince you to pay $4 for a Starbucks even if you think "coffee is coffee" (marketers can't stand those types).The Takeaway:Wanted: sustainable packaging for your dim sum... The combo of ecommerce and food delivery (@UberEats, @Doordash) means more packaging. So your curry dinner's six styrofoam tubs are popular, too. Delivery diets have become a packaging problem that we hope becomes an entrepreneur's opportunity. Some ways to do it:
Recyclable packaging: Good start, but what happens when it's covered in chili paste?
Package taxes: Since adding 10-cents to your plastic bag isn't loved, companies tend to avoid them (unless a law requires it). FYI, Maine and New York City just banned styrofoam.
Compostable and reusable packaging: Even "luxe" packaging startups are getting into this. Apr 25, 2019 Starbucks hits record high (despite loyalty program change) Read More No room for milk... Starbucks shares overflowed to a record high after its earnings report. We were most interested in potential drama behind its latest loyalty program changes. But Starbucks first shared some personal updates:
It's bringing back the S'mores Frappuccino.
The 30,000th Starbucks just opened (in Shenzhen, China).
And it's investing $100M into a food/packaging-focused venture capital fund, probably to find the elusive spill-proof lid.
The "Starbucks Rewards" loyalty program now accounts for 40% of all transactions, so we jumped into its details...
Remember February 2016?... We do. Starbucks tweaked its reward points from per-visit to per-dollar-spent perks. People vented. Aggressively. This month, Starbucks tweaked the program again — Drama-free this time. Participation jumped 13% from last year to 17M members.
The Takeaway:The future of rewards programs is smaller perks but more often... Airlines are doing away with biz class upgrades, offering drink vouchers instead. Looking at Starbucks' new program, it's the same thing — Rewarding you more often with smaller gifts. Here's the system that keeps us just caffeinated enough:
It now takes 150 Starbucks Stars (=$75) to earn a free drink, not 125 (=$62.50).
But along the way, you now get "flexibility benefits" of free vanilla or espresso shots.
Smaller perks. More often. Apr 25, 2019 Domino's jumps 5% as CEO defends in-house delivery Read More Extra cheese... Despite vicious competition, Domino's quarterly sales still rose 4%. But the highlight was new CEO Ritch Allison defending the chain's contrarian delivery strategy: Domino's handles its own deliveries instead of using those flashy new apps. And it's proud of it.
Dough-to-door delivery happens under the Domino's brand... Meanwhile, McDonald's, Starbucks, and Chipotle use third-party delivery apps DoorDash, Uber Eats, or Postmates, with aggressive discounts to lure new eaters. That delivery outsourcing can cut costs and boost sales. But Ritch has problems with it:
Quality: DoorDash's gig workers won't treat the pizza with the same love and care as Domino's faithful deliverers would.
Fees: Uber Eats would snag 15%-30% of each order, and that adds up.
Data: Postmates won't share key info about the orderer with Domino's. So Ritch won't give up data to "some third party who will ultimately use it against us."The Takeaway:Domino's has an obsession for the customer (data)... Acting like a tech company, Domino's has converted tons of phone call deliveries into app-ordered ones. Not only does Domino's keep the entire pizza bill by delivering on its own — It also understands eaters' eating habits. Knowing your Saturday late-night order helps it better sell you pizza midweek.