Reevaluating Starbucks' Moat: A Critical Analysis of Market Share and Profitability Sustainability
What constitutes a 'moat'? Under the premise of stabilizing market share, it is the capacity to maintain a high and steady rate of return on invested capital (ROIC) over the long haul. Both these conditions need to be fulfilled concurrently for a business to be deemed as having a 'moat'. There are those who assert that Starbucks enjoys such a 'moat', yet I am not in agreement.
Firstly, does any empirical evidence substantiate the assertion that market share is ascending?
Secondly, supposing the initial point is established, would the introduction of a rival that pushes the run-rate ROIC into negative territory still allow for the fulfillment of both stipulations? To put it differently, if securing market share is achieved at the expense of a drastic reduction in ROIC, does it still conform to the 'moat' definition?
Thirdly, in the event that a sole competitor can obliterate the incumbent's profit margins, how then should we consider the prospect of more profitable beverage entities entering the coffee sector, armed with the capacity and endurance for price skirmishes? This line of thought challenges the durability of Starbucks' alleged 'moat' when confronted with fierce rivalry.
Firstly, does any empirical evidence substantiate the assertion that market share is ascending?
Secondly, supposing the initial point is established, would the introduction of a rival that pushes the run-rate ROIC into negative territory still allow for the fulfillment of both stipulations? To put it differently, if securing market share is achieved at the expense of a drastic reduction in ROIC, does it still conform to the 'moat' definition?
Thirdly, in the event that a sole competitor can obliterate the incumbent's profit margins, how then should we consider the prospect of more profitable beverage entities entering the coffee sector, armed with the capacity and endurance for price skirmishes? This line of thought challenges the durability of Starbucks' alleged 'moat' when confronted with fierce rivalry.
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