Starbucks' Rebound: Will It Last?

Starbucks (SBUX) saw sales rise last quarter -- the first sign of growth in more than two years.

The company attributed the boost largely to the success of Via, its new instant coffee, which supposedly tastes just as good as regular coffee. Starbucks kicked off the new product in September, promoting Via like its life depended on it. But Dan Mitchell at Daily Bread wonders if this might have merely inspired a surge of curious customers who ultimately won't stick around.

Maybe. But Via sales only accounted for half of the quarter's increases, so the company must be doing something else right. Starbucks has been doing a lot of cost-cutting, including closing under-performing stores. It's also been paying more attention to local tastes. The New York Times reports:

Coffee drinkers in the Sun Belt, it turns out, prefer cold drinks, while those in the Northeast generally like drip coffee and those in the Pacific Northwest drink more espresso. Yet the executives in charge of regions of the country were divided along time zones and out of touch with what different customers wanted.

And Via hasn't even made it to Europe yet, where the instant coffee market is much bigger than in the U.S.
Most importantly, the company has gone through an attitude change. "We had allowed success to make us complacent," CEO Howard Schultz said in the most recent earnings call. That very success had attracted the attention of new rivals, most notably McDonald's (MCD), which launched its own espresso drinks at its new McCafes -- a move which Starbucks initially chose to ignore.

Eventually, though, Starbucks did wake up and smell the coffee, and it seems to be getting itself back on track. As Schultz admitted in November, "McDonald's made us better."

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