The discounts at Starbucks (NASDAQ:SBUX) don't stop at the menu these days. Hours after the lukewarm coffee chain revealed its plans to offer value meals, Standard & Poor's did a little marking down of its own. S&P is downgrading the company's short-term credit rating, and dampening its outlook on the company from stable to negative.
Everyone seems to be marking down Starbucks these days -- except for its shareholders. Despite an incessant streak of disappointments, shares of Starbucks are trading 50% higher than the low point they hit less than three months ago.
Granted, a lot of stocks were beaten down to unfathomable levels in mid-November, but things are unlikely to improve at Starbucks anytime soon. Offering breakfast-sandwich-and-coffee combo meals for $3.95 may help win over some of the traffic bleeding over to Dunkin' Donuts, McDonald's (NYSE:MCD), and Burger King (NYSE:BKC), but any company that turns onto Discount Drive quickly discovers it's a one-way street.
Do you really think that McDonald's will ever shake its Dollar Menu? Once the recession passes, does Starbucks honestly think it can go back to $3 and $4 lattes? Not as long as everyone else around it is still marking down their goods.
This doesn't mean that Starbucks is doomed, however many nail-biting credit agencies talk down the company's prospects. It just means that Starbucks will have to face the future without its luxury luster. Before long …
- Your kids will be asking for a Starbucks Kid Meal, complete with Frankie Frappuccino windup toy.
- The friendly barista will ask whether you would like to venti-size your order for an extra $0.59.
- Your afternoon decaf hit will have to take a little longer, because the barista has to disinfect the ball pit.
- Your children will be promised "a latte fun" in the invitation for their classmate's birthday party at the local Starbucks.
And at least McDonald's can turn a profit despite its bargain-basement image, thanks to its barbell pricing strategy. It can mark down some items aggressively because it makes up the losses with higher margins on beverages and premium-priced items. What will the Starbucks barbell look like? Won't it be more like a dumbbell?
If Starbucks is lucky, it may aspire to attain the "cheap chic" status of Target (NYSE:TGT). But we all know that the "everyday low prices" mantra is really Wal-Mart's (NYSE:WMT) handiwork.
Let me know when the java giant begins hiring Starbucks greeters.
How do you feel about Starbucks as a long-term investment?
- Alyce likes it.
- Seth likes it.
- I don't.
- Do You Still Own This Garbage?
