John Lykouretzos is portfolio manager of hedge fund Hoplite. He previosly worked as a consumer analyst Julian Robertson.
John Lykouretzos likes Starbucks Corporation (NASDAQ:SBUX), there are a few drivers going forward.
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The global coffee market is growing at a 7.6% annual rate and it is not cyclical.
5:49: Single serve is becoming a big part of this market. In Germany and the US it is still in its infancy, but is growing at a rapid 38% and 55% respectively.
5:52: The K-Cup has been the catalyst for growth for the single serve market. It is growing at a rapid rate, and K-cup shares make up 20% of US coffee markets.
Starbucks has less than 15% share of the out of home market. There is huge room for penetration.
5:53: Starbucks suffered in 2008 and 2009 but management was able to turn it around especially with falling commodity prices.
5:54 Customer service is optimized to make buyers happier. Investments in mobile payments and even topics like lighting, seating are paying off.
Starbucks has already taken 17% of the K-Cup market despite its only recent entry.
Most of single service market is Espresso and there is no dominant player.
5:56: Starbucks is now entering this market. Going forward China is the big story. People in China love the product like Nike and Apple.
5:57: In China it is a different market than China. Starbucks is catering to the taste of the local market. Operating markets are the highest for Starbucks in China.
5:58: Starbucks business should grow with higher EBIT margins, ROIC and EPS. The stock could trade at $90 within the next three years.