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Starbucks’ “bring your own cup” has problems, Citi says

Starbucks reusable cups

The move to allow Starbucks’ (Starbucks Stock Quote, Chart, News, Analysts, Financials NASDAQ:SBUX) customers to bring their own cup presents some problems, says Citi analyst Jon Tower.

On January 3, SBUX announced it would allow customers to use their own cup in-store, while ordering on the app and in its drive throughs. The coffee giant said the move would help it to achieve its goals of a fifty per cent waste reduction by 2030.

At Starbucks, we envision a future where every beverage can be served in a reusable cup,” Starbucks chief sustainability officer Michael Kobori said. “Offering customers more options to use a personal cup when they visit Starbucks marks tangible progress towards the future. We know our customers are passionate about the planet, and now, they can join us in our efforts to give more than we take, no matter how they order.”

As reported by the Globe and Mail January 5, Tower says the move brings “additional risk” to Starbucks because the data behind it is “shaky”.

The analyst said it’s hard to imagine that these move won’t cause delays.

“We estimate this equates to an 28 per cent/mid-teens discount on a drip coffee/specialty beverage purchase cycle,” Tower wrote. “SBUX notes that this rollout is a direct result of its ‘test and learn’ process, but we see it raising obvious operational/throughput questions, and at least a period of customer/employee education to internalize the new processes. SBUX plans to take and hand back customer cups using a ‘contactless vehicle’, and they will essentially create the beverage in another cup, move to the customer cup and add toppings. We find it hard to see how adoption of this additional exchange doesn’t slow down drive-thru and disrupt MOAP [mobile order and pay] flow, and/or require another chunk of investment in labor, and we expect some ongoing confusion regarding cup sizes, what constitutes a clean cup, etc.”

In a research update to clients today, Tower maintained his “Neutral” rating but cut his price target on the stock from $110 to $103.

Shares of SBUX closed January 4 up $0.32 to $93.55.

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