The Third Pig

Starbucks Does Well By Doing Good

Posted by Ben Taylor on November 4, 2011 11:00 AM

Starbucks reported earnings yesterday and profits were up 29% in the fourth quarter. The company bested Dunkin Donuts in same-store sales as well. Theirs rose 10% while its main rival's rose just 6%. The company credits its recent success with brand loyalty among its customers.

Bucks Jobs by Ben Taylor
source: Benjamin Taylor

I for one have been a loyal customer of Starbucks for many years. I also admired Starbuck's way of doing business. I always thought of the company as well run. However, during those years, Starbucks's stock remained at lofty prices and it wasn't until the Great Recession that the company's stock became reasonably priced. Since we bought it for the Core Portfolio at the end of 2008, it has returned nearly 336% for us and become our largest holding (as of 11/3/2011).


I believe one of the reasons Starbucks can generate loyalty amongst its customers is the social responsibility the company exhibits. Customers (and investors) want to be associated with a company they can feel good about. I also believe that companies that act responsibly also make good investments. Although Brick Financial does not engage in Socially Responsible Investing (SRI) as it is commonly known, I look for companies that have certain characteristics and these companies are typically good citizens. There has been some research to suggest SRI does in many cases outpace general market investing. The authors find:

In terms of firm level performance, we compare regular funds with replicating portfolios that have been adjusted for unethical companies according to a norm-based screening method. We find that the replicating portfolios perform better than the regular funds, suggesting that certain socially responsible practices affect fund performance positively.

Again, if a company does good, it is likely to be doing well. And vice versa. It is also likely to produce loyal customers like myself. As an example, I purchased my Let's Create Jobs For USA bracelet this morning and will be wearing it proudly.

Disclosure: At the time of this writing, I and the clients of Brick Financial Management, LLC owned shares of Starbucks (SBUX).
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