Concerns over customer loyalty — as well as increasing competition in the craft coffee market — have caused one Wall Street analyst to cut his price target on Starbucks.
In fact, Cowen analyst Andrew Charles said both factors are likely to hinder Starbucks sales over the next two years, according to CNBC. As a result, he downgraded the coffee company to market perform from outperform.
The analyst also cut his price target on shares of Starbucks to $65 from $68, implying 9 percent upside over the next 12 months.
Starbucks did not immediately respond to comment, but its shares fell 0.3 percent on Friday.
One of the biggest concerns for the coffee retailer is customer loyalty. Starbucks experienced an unusually light period of gift card activations during last year’s holiday season, which will have an impact on the success of loyalty efforts for 2018.
In addition, there has also been stagnant growth in active rewards program members, with the numbers stalled at 10 percent to 20 percent growth in Starbucks card loads over the past four years.
“As a result, Starbucks is broadening loyalty efforts to more aggressively target new and lapsed brand users,” Charles said. “We spoke to three third-party loyalty experts and came away with the view that Starbucks’ efforts could be effective, but the timeline and magnitude of success are highly uncertain.”
There’s also the increase in competition from collective craft and independent coffee shops, which are growing at over two times the rate of Starbucks, according to Cowen. As a result, Starbucks has struggled with sales in the U.S. for several quarters as new beverage creations have failed to attract consumers, while shoppers are largely ignoring the chain’s in-store merchandise.
“The success of independent ready-to-drink coffee growth, within the context of declining Starbucks market share, may be a harbinger of the impact that smaller craft and artisanal coffee shops are having on Starbucks’ same-store sales,” Charles said. “Independents collectively remain small, but point to signs that these concepts are stealing the incremental traffic from Starbucks.”