Starbucks Corporation (SBUX): What Makes It Stand Out?

There is one simple economic trend that’s worked in Starbucks’ favor: coffee prices. After a big run-up from 2009 to 2011, the price of coffee has gone back to levels last touched five years ago:

Source: Coffee Arabica Price data by YCharts.

Compare this to the first graph, particularly to Starbucks’ free cash flow. Both coffee prices and free cash flow crept higher at roughly the same rate. When the price of coffee declined, Starbucks kept the cash flowing just as well as before. Pricing power matters here, and few brands have the power of Starbucks. Both The J.M. Smucker Company (NYSE:SJM) and Kraft Foods Group Inc (NASDAQ:KRFT) cut the prices of their packaged coffees in February to entice consumers. Starbucks hasn’t lowered prices in its stores since 2009, and has no reported plans to reduce the costs of its brews despite this downward trend.

It seems clear that this is a win-win for Starbucks Corporation (NASDAQ:SBUX). If coffee prices go back up, Starbucks can raise its prices again. If coffee prices go down, Starbucks doesn’t have to do anything, and its loyal consumers will pay the price regardless.

The greatest threat to Starbucks is purportedly McDonald’s Corporation (NYSE:MCD) and its McCafes or Dunkin Brands Group Inc (NASDAQ:DNKN) and its popular anti-Starbucks branding. These are legitimate threats, but do they really strike at the heart of what makes Starbucks work? Probably not — neither restaurant chain has ever been seen as a gathering place or a social hub, and I doubt that either will somehow convince the world otherwise anytime soon. The “accessibility” of Starbucks is one of its greatest assets, encouraging customers to come and sit for a while, and it’s something no other beverage slinger has really managed to replicate.

Starbucks may not be able to grow forever, but it should be able to push ahead of the pack for some time longer. Consider this stock a solid cornerstone for a long-term portfolio: steady, stable, durable, and market-beating. Plus, it pays you back, with a dividend that’s already doubled since mid-2010. What’s not to like?

The article What Makes Starbucks Stand Out? originally appeared on Fool.com is written by Alex Planes.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.The Motley Fool recommends and owns shares of McDonald’s and Starbucks.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.