Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

True coffee connoisseurs know it takes time and patience to brew the perfect cup of joe.

Starbucks Corp. shares fell 4 percent in after-hours trading Thursday after the earnings report failed to deliver results in line with analyst forecasts for the fifth quarter in a row. The coffee chain also lowered revenue estimates for the coming year, citing depressed customer traffic in the U.S. and bottlenecks caused by too many customers ordering drinks online and waiting in stores to pick them up.

Caffeine Jolt
Starbucks shares posted their first annual drop since 2008 but still outperformed the restaurant industry
Source: Bloomberg

Numbers like that don't sit well with investors: Last year, Starbucks posted its first annual share decline since 2008.

Some context shows that it's a bit too soon to count the coffee chain out, however. The stock, which closely tracked its restaurant peers from 2007 until early 2015, actually outperformed the rest of the U.S. restaurant industry, which fell into a deep malaise last year as consumers started spending more of their money at grocery stores and eating out less.

And Starbucks brought more customers in its doors than competitors did, even as sales growth at existing locations slowed from a historic same-store growth rate of 5 percent.

It's All Relative
While sales growth at existing Starbucks locations slowed, it's still outpacing the restaurant industry
Source: Bloomberg
Note: The rest of the industry hasn't yet reported same-store-sales for the fourth quarter.

There's no question Starbucks has some major work to do.

McDonald's and other fast-food outlets are siphoning off Starbucks's lower-end customers, while Blue Bottle and other hipster-friendly coffee roasters are taking business away from the high end.

Meanwhile, Starbucks is still struggling to persuade customers to take more sandwiches and cookies with their lattes and cappuccinos. And it has acknowledged that adding mobile ordering and pickup locations, drive-through stations, and higher-end coffee and drink bars to its mix is complicating store operations, slowing down employees, and confusing some customers.

The shares still look vulnerable: At 26.1 times forward earnings, right around the five-year historical multiple of 26.4, Starbucks stock trades above Dunkin' Brands Group Inc. and McDonald's Corp., on 21.2 and 19.7 times forward earnings, respectively.

Don't write off Starbucks's promises to return to its historical pace of growth, though.

The newly announced Chief Executive Officer Kevin Johnson, who has the potential to shake things up and fix some nagging problems, doesn't officially take the top job until April. Until then, he's unlikely to break with the status quo. 

Starbucks's successful expansion across the Asia-Pacific region -- including China, where it's opening a new store every 15 hours -- will become even more important as customer traffic in the U.S. slows.

Store Count
Starbucks aims to get up to 37,000 stores by 2021, which would overtake McDonald's store footprint
Source: Bloomberg

Mobile payments make up 27 percent of Starbucks's U.S. transactions, and WeChat transactions account for one-fifth of purchases in China, so the chain's tech prowess remains well ahead of competitors. That's an important differentiator when technology is increasingly determining the restaurant industry's winners and losers.

Change doesn't happen overnight. This one could be a slow brew.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net