Heading out for a sweet drink makes a lot of people think of coffee giant Starbucks (SBUX). But a growing number of competitors are looking to pull that rug out from underneath Starbucks, and by extension, the people who might have patronized it. From Sonic to Yum Brands’ (YUM) Taco Bell, the competition is getting thick. And Starbucks may have a real fight on its hands. Investors did not seem concerned, however, and shares of Starbucks gained nearly 1.5% in Tuesday afternoon’s trading.
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Sonic has rolled out a range of new menu items lately, none of which Starbucks will be able to readily answer because they are completely out of its wheelhouse. Starbucks will never be able to match the BBQ Ranch Crispy Tender Wrap, or ice cream-based Trick-or-Treat Blasts. But the part that will really grate on Starbucks is the new Bourbon Caramel Iced Coffee.
The Bourbon Caramel Iced Coffee comes just weeks after Sonic rolled out the Caramel Toffee Iced Coffee, and will be available for order starting October 20. It even comes with some advance marketing thrown in, as the drink was featured on On Brand with Jimmy Fallon, a show that lets viewers pitch products for businesses to put in.
It Gets Worse
Sonic’s new drink is not the only competitor Starbucks will face. Taco Bell and Chick-fil-A both have their own competing models coming out that will draw attention—and likely market share—away from Starbucks. In fact, both are opening up spinoff restaurants with a focus on beverages. Taco Bell is rolling out Live Mas Cafe, which has opened five locations throughout California. Taco Bell wants to ultimately pull in $5 billion in beverage sales by 2030.
Meanwhile, Chick-Fil-A’s option, Daybright, is opening its first location in Atlanta later this year. While these are both comparatively small against Starbucks’ thousands of locations throughout the United States, any momentum from either of these will likely hurt Starbucks on at least some level. Worse, this comes as Starbucks is rolling out an improvement plan designed to get more customers to come in and stay in the Starbucks near them.
Is Starbucks Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on SBUX stock based on 13 Buys, six Holds and one Sell assigned in the past three months, as indicated by the graphic below. After a 15.79% loss in its share price over the past year, the average SBUX price target of $101.44 per share implies 25.11% upside potential.
