Elephant Walk

A while back in this space I was writing about some of the measures that Starbucks is using to attempt to recover the market share it is losing to other coffee providers, notably including McDonald’s highly successful “McCafe” product line. I said at the time that I didn’t believe that the Starbuck’s breakfast sandwich program would be enough to turn the tide, since most of the people who want a breakfast-on-a-bun product already eat at McDonald’s (or one of their competitors) and it’s hard to differentiate one badly-made breakfast product from another. Subsequent sales seem to have borne out that contention, and the chain has continued to tinker with their product mix, adding new beverages and experimenting with new food items. Including products from the Cheesecake Factory…

An article published last week suggests that Starbucks may be considering a corporate alliance or even a merger with the Cheesecake factory. There might be a case for doing something like this, in fact; Starbucks locations definitely sell food products that go well with coffee, including lots of cheesecakes and other desserts, and this would provide a huge number of retail channels for the Cheesecake Factory. At the same time, this would almost certainly provide a boost in business for Starbucks, particularly if they invest in enough stock (and equipment to take care of it) to sell whole cakes and pies from their existing locations. It’s debatable how many more people would go to Starbucks just to eat better cheesecake, but if the retail locations became an outlet where you could get a pie for the office party, or a cake for today’s conference, this would almost certainly draw additional business to locations in commercial areas…

What is known, and rather more unexpected, however, is the effect this speculation is having on the stock position of the Cheesecake Factory. Starbucks’ financial situation is a bit up in the air right now, as they attempt to find new growth areas (and possibly reposition themselves into a more “premium” segment of the market), but the Cheesecake Factory’s stock has risen more than 6% just on the speculation that they might be entering into a closer relationship with the giant coffee retailer. Even in a relatively stagnant time, Starbucks is so big (and an alliance with them would have so much impact) that even the rumors about a possible deal are influencing the stock price of another company, like the vibrations from an elephant’s footfalls knocking fruit off of a tree…

Of course, this is hardly a new phenomenon. Investors and investment firms spend a significant portion of their lives searching for news of events like these, and more than occasionally the price of a specific company’s stock will take a sudden increase on the rumor of some deal that never materializes. Even though the financial analysts quoted in the story all said upfront that they were only speculating, and no one has said anything about an actual deal, the rumor of a possible event is enough to send people scrambling to call their brokers…

What we can learn from all of this is that while some news stories carry more weight than they really ought to, and you can’t believe all of the wild speculation you will read in the paper (or see on the Internet), some companies can make waves just because of their behemoth size and the impact that even a minor deal with them would have on the rest of their industry. In the long run, Starbucks may not merge or ally themselves with the Cheesecake Factory, or the La Brea Bakery, or any other food-production company. But if your company is likely to be affected by such a deal, either because you’re a Starbucks competitor, a Cheesecake Factory competitor, or a supplier of anything to either firm, it probably wouldn’t hurt to pay attention to those vibrations you keep feeling underfoot…