The Curious Capitalist, Justin Fox, Economy, Markets, Business, TIME

April 8, 2008 10:17

The first Starbucks recession

Posted by Justin Fox | Comments (4) | Permalink | Trackbacks (0) | Email This

My (free) cup of Pike Place Roast, in Bryant Park

You know how all those Suze Orman/Dave Ramsey/David Bach types, when they talk about getting out of debt and saving some money, tend to start by saying you should give up that $4 cup of Starbucks in the morning? Well, Americans appear to be taking their advice, on a mass scale.

"You've got a consumer that clearly is under tremendous pressure," said Howard Schultz, now 12 weeks into his second stint as Starbucks CEO, on a visit to Time yesterday afternoon. "For the first time in our history as a company, we have negative traffic this year vs. last."

Now Schultz surely has his reasons to paint Starbucks' recent troubles as mostly recession-related and not the result of competition from Dunkin Donuts or, God forbid, McDonalds (where the coffee is, Schultz said, "swill"). But he's still got a front-row seat on the recession, which makes what he says interesting.

"Our U.S. business is under pressure as is every other consumer brand--except for Costco," he said. "What we're seeing over the last six months is less frequency. They're not going anywhere else."

Schultz said the downturn is worst in South Florida and Southern California, which makes sense. And he said he doesn't really think Starbucks can make things better by cutting prices. The company tested $1 coffee and free refills in its Seattle stores in January, and wasn't happy with the results. It is, however, trying to improve its brewed coffee, which is cheaper than the espresso-machine stuff--and there's talk of creating some sort of self-service line for brewed-coffee drinkers sick of waiting behind the double-skim mocha latte people. (For much more on Starbucks' revamp, by sometime Curious Capitalist Barbara Kiviat, check out this Time story from a couple weeks ago.)

The big unveiling of the new Pike Place Roast brewed coffee was this morning in Bryant Park, complete with hastily constructed replica of Starbucks' original store in Seattle's Pike Place Market (in the background in the photo above). I got a free cup. The guy who gave it to me told me I had to take a sip of it straight so I could experience the magic. Tasted like bitter coffee to me. It was quite good with milk and Equal in it, though.

Sphere Related Blogs & Articles

Reader Comments (4)

chicagoadam:

Starbucks must wake up and realize their problems are NOT about the coffee. The market for coffee shops and gourmet prepared coffee is nearly saturated, and being overrun with mass competitors. Starbucks has to find new places to compete. Its forays into sandwiches, other merchandise, music production, movie production and star agency were the kinds of things that could save the company - and now Mr. Schulz is tearing those down to invest in a slugfest which will only drive down margins. Investors beware. Read more at http://www.ThePhoenixPrinciple.com

Posted by chicagoadam | April 8, 2008 3:42 PM

rrsafety

David Boaz at the Wall St. Journal has a great piece yesterday about Starbucks' censoring the phrase "Laissez faire" on it's personalized gift cards as too political while at the same time allowing the phrase "People not profits".

Any wonder that the company is screwed up?

Posted by rrsafety | April 8, 2008 3:47 PM

That Anonymous Dude:

Starbucks-free since late 2004.

Venti-hazelnut-latte which is mostly steam and foam and a lemon slice cake @ starbucks= $7-$8

Large hazelnut coffee and toasted bagel with all the cream cheese I care to put on @ work cafeteria - $3.50

Posted by That Anonymous Dude | April 9, 2008 8:56 AM

Mustache Leader:

It's always amusing when a CEO has to criticize a competing product - one that's actually not too bad (although I generally hate McDonald's) - because his products can't stand on their own merits. Regardless, what would be really, really nice is if Starbucks stopped serving burnt beans. Face it, the reason Starbucks took off is social in nature - it became cool in LA and New York so everyone else started doing it. Am I bitter? Possibly. But according to you, grand master Fox, so is the coffee minus milk and Equal!

Posted by Mustache Leader | April 9, 2008 10:46 AM