$tarbucks
April 28th, 2008 by Grant in: InvestingStarbucks (SBUX: chart, web, Y!) has been making valiant efforts in marketing to combat the effects of cheaper coffee shops and gourmet coffee-selling fast food chains. But they’re coming up short.
I could smell this one coming from miles away (pardon the pun). The first thing to suffer from a falling economy is the discretionary purchases that have become most routine. When you first start looking at your budget and ask yourself the question: “where can I save a few bucks here and a few bucks there?” the answer is easy. You could quit spending $5 on a cup of coffee!
I remember when coffee was complimentary with any meal, and you could buy a cup of joe with all the fixin’s for less than $0.25 and usually for a dime. That was then, this is now.
Starbucks business model is very focused on coffee, although they have branched out into light pastries and quick gourmet snacks. But the focus is still on coffee. Expensive coffee.
I only frequent Starbucks when I travel. They have quick kiosks right next to the gates at the airport, and generally my travel schedule dictates that I arrive for the earliest of flights to where ever I’m going. Most restaurants aren’t open that early, but Starbucks has the brew going strong (again… the pun) before I’ve arrived.
The problem is that I just want coffee. Plain old black coffee. No mocha-lotta-cappa-whatever… just coffee. I usually end up getting a blank stare from the barrista (er… whatever they call the guy who pours the coffee) for wanting “just coffee” but then after shelling out nearly $3.50 for “just coffee” I make my way to the gate.
I digress.
Starbucks is in trouble. We’ll find out just how much trouble on Wednesday when they report earnings. Analysts are predicting an EPS of $0.21, which is just $0.02 more than a year ago.
I’m not a gambling man, but I bet SBUX misses estimates.
Tags: coffee | SBUX
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April 28th, 2008 at 4:11 pm
Starbucks will continue to lose money until the economy gets a jump start. Expensive coffee is a luxury. Or they could lower prices…
Shameless Plug:
I just posted a couple of ideas for stocks in this economy.
April 29th, 2008 at 11:56 am
It’s true! I’m a Starbucks fan (lattes only), but I’ve had to really cut back on my visits. Last time I did the drive through there, the barista told me they’ve had to cut back on the amount they brew fresh everyday. Actually, what they’re doing is brewing a quarter of the normal more frequently, which adds up to less coffee overall. Business has slowed, she said, so they’re wasting coffee, having it just sit and overcook in the pot.
Also, did you notice they’ve changed blends recently? Some customers have been unhappy with the switch, she said. I’m thinking the blend changes may be to cut costs.
April 29th, 2008 at 4:43 pm
Great info, Trisha!
I’ve noticed that coffee prices (i.e. the raw ingredient) have been on the rise as well, which I’m sure is eating into Starbucks margin.
@MJ, what other luxury items do you see dropping off in todays economy?
I don’t see fast food declining much, although the higher-end restaurants may be taking a hit…
April 29th, 2008 at 10:32 pm
@G
Personally I see a lot less flights being made. I know my own company has cut back on travel, and I know our suppliers are doing the same. I think you will see increases in repair services to nurse equipment along though.
Other luxury items include motorcycles, new computers, high dollar foods (like Whole Foods, Applebees), and remodelling (Home Depot, Lowe’s).
Which thinking about it makes me maybe like companies like Kroger (cheap groceries) and LKQ (used car parts) might do well in this economy.
What else do you think will be luxury items?
May 12th, 2008 at 10:16 pm
Starbucks (and most cafes) have already been more about the 30-minutes to 2 hours of quite time spent reading/studying/talking somewhere outside of home/work in trade for the $4 coffee. I never really understood the idea of paying that much money and running out the door.