A simple cup of Starbucks (NASDAQ:SBUX) coffee might not seem nearly as technologically advanced as Apple’s (NASDAQ:AAPL) iPhone 5 or as sophisticated as a block of Google’s (NASDAQ:GOOG) Android code, and that’s because, well, it just isn’t. Indeed, no amount or creative combination of sugar, cream, or caramel could transform a latte into a tech product. But don’t assume that means Starbucks shares don’t behave like those of the true tech giants.
As with Apple and Google, the price of Starbucks shares is among the most carefully watched and fervently talked about, known to dip and soar rapidly, and be heavily influenced by moves made by its primary competitors. And what defines Starbucks’s success is the same as what lies at the heart of all tech stocks: innovation.
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Starbucks is tech-like in its determination to pioneer advancements and stay ahead of its competition – coffee-industry players like Green Mountain Coffee Roasters (NASDAQ:GMCR), Dunkin’ Brands (NASDAQ:DNKN), and McDonald’s (NYSE:MCD). Two recent undertakings by the Seattle, Washington-based company illustrate the sort of commitment to innovation that makes Starbucks’s stock behave more like a tech stock than the average café-goer enjoying an espresso might suspect.
The first is a change in how that café-goer can pay for his or her espresso. Beginning in early November, Starbucks customers will be able to purchase their favorite menu items using Square Wallet mobile payments. Starbucks is partnering with Square – a hot tech start-up in which it has recently invested $25 million – to establish a system that allows patrons to simply show cashiers a barcode on their smartphones to be scanned for payment. The new payment method will not only be more convenient for the customer, but Starbucks anticipates it will significantly reduce the company’s costs associated with credit and debit payment processing fees. In 2013, Starbucks and Square plan to improve the system even further, when Square’s GPS technology will locate a customer’s phone inside a Starbucks store and call up the customer’s information and photo for even speedier transactions.
Starbucks is also revolutionizing how its loyal customers can satisfy their coffee fixes when they can’t make it to one of the company’s nearly 13,000 U.S. locations. It has announced one of its largest marketing campaigns ever to promote sales of its new Verismo, an in-home, single-serve coffee brewing machine. Starbucks plans to spend millions advertising the new product through TV commercials, print ads, social media, and digital marketing in anticipation of the holidays.
What makes the Verismo so unique is the capability – which the current industry-dominating Keurig single-serves made by Green Mountain lack – to make coffee, espresso, and latte drinks. The machine will be the first on the market to offer such triple-brewing technology and, as any smart, competitive tech company would, Starbucks intends to leverage the Verismo to gain an advantage in the market. Senior VP of Marketing Terry Davenport says the new product “allows us to come at marketplace with the positioning of having all your favorite Starbucks beverages, no matter what they are, available on one machine.”
Experts agree that the latest innovation will pay dividends for Starbucks. Morningstar analyst R.J. Hottovy expects the impressive Verismo will catch the competition off-guard and will “be a disruptive force in the rapidly growing at-home premium single-serve coffee category,” which has grown to more than $8 billion globally. This is good news for Starbucks and its shareholders, because while it may not be a de facto tech company, Starbucks does innovate like one. And like any successful tech company does, Starbucks knows out-innovating the competition is the only way to stay on top.
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