The difference between SBUX and KKD

Andy Swan created and co-founded DaytradeTeam five years ago on a principle of empowering individual stock and options traders with the techniques and analysis methods typically reserved for elite professionals. His expertise in technical analysis and commitment to educating members earned DaytradeTeam a top-ranking among advisory services for several years.

Krispy Kreme Doughnuts (KKD | Quote | Chart | News | PowerRating) and Starbucks Coffee (SBUX | Quote | Chart | News | PowerRating) seem like a perfect fit...what's more natural than doughnuts and coffee? Well, one thing that's very different about the two is the performance of their stocks--SBUX makes new highs in the $30's while KKD does this over the last two years:

On the surface it's easy to blame KKD's problems on accounting irregularities and Atkins fads. But I think the problem goes deeper than that. They lost their brand by taking the "exclusivity" out of their doughnuts. You can get Krispy Kremes in almost every grocery store now. Heck, you can even get them in gas stations 50 miles from the nearest Krispy Kreme store.

They're still good doughnuts, but not as good as the ones at the actual Krispy Kreme stores. But then again, why go to the Krispy Kreme store for a doughnut when you can just pick up a box when you fill up? Oh...this gas station has Dunkin Donuts, not Krispy Kremes---oh well, what's the difference...they're "just doughnuts." And so the dilution of the brand continues, and stock prices fall.

So what does this have to do with Starbucks? KKD's stock is down big, and SBUX is up big over the same time period. Unfortunately, there are signs that the SBUX run is over. Actual, physical signs. They're everywhere. Starbucks in the bookstore, Starbucks in the mall, Starbucks in the airport and even Starbucks in Target stores. At this point, I wouldn't be surprised to see a new Starbucks stand open up inside of a Starbucks store.

And just like KKD, I think SBUX is completely diluting its brand. Starbucks is about the experience and the design as much as it is about the coffee. All of a sudden, it's not so hip to hang out at a Starbucks on a Friday night after seeing one of their stands in every store you've gone into all week. Locally owned coffee houses are being built in strip-malls across the nation with the same "cool hangout" design as Starbucks. This Friday night I saw 40 people STANDING, listening to a local band in a coffee shop with a name you've never heard of---wake up call anyone?

SBUX brags that they are going to open 20,000 new "stores" across the world. The question is...is that really a good thing? At some point, the hip coffee shop from Seattle becomes a global name that just isn't that special anymore....And who's going to pay $3.50 for a cup of coffee that isn't special?

Andy Swan