Don't let it get away!
Keep track of the stocks that matter to you.
Help yourself with the Fool's FREE and easy new watchlist service today.
So, is this how it's going to be, Starbucks (Nasdaq: SBUX ) ? Instead of poking, prodding, and fixing your problems, you're going to blame the consumer?
Reading Alyce Lomax's brutally honest account of last week's shareholder meeting -- at which the company had the gall to blame its fade on a supposedly incorrect notion that the chain's brews are costly -- blew my mind.
Starbucks somehow feels that its recent woes are related to the "myth" of $4 coffees -- a myth that, unlike Bigfoot, Chupacabra, and the Loch Ness Monster is oh-so-very real. In other words, Starbucks says it isn't wrong -- Larry Latte and Veronica Venti are the idiots.
Come on back, java sippers. Starbucks is cheaper than you think!
What a load of Frappuccino
If the bean baron is struggling only because luxury items such as premium brews are kryptonite to the masses, and Starbucks claims that it's offering up a fair value, it would be a breeze to crank out a new marketing slogan.
Try a few of these on for size:
- Tight on cash? Bean there.
- You can't spell Starbucks without a buck.
- Our coffee is hot, but our prices are even hotter.
- Starbucks: Just pay us what you can.
Unfortunately, there are several flaws to the company's attempts to claim it's been mistaken for a Bentley or a Kate Spade handbag.
The obvious knock on the theory is that the company's waning popularity has been going on for some time now. Stateside comps began to turn lower during the company's fiscal first quarter of 2008, which is essentially the 2007 holiday season. That's when the company's pricing flexibility came to a screeching halt, as a 1% decline in the number of same-store transactions couldn't be lifted by a 2% increase in the average value of those transactions -- spurred mostly by price increases in July of 2007).
Was luxury spending a cultural no-no two holiday seasons ago? Not exactly.
- Whole Foods Market (Nasdaq: WFMI ) delivered a 9.3% increase in comps during the quarter.
- High-end yoga-mom haunt lululemon athletica (Nasdaq: LULU ) posted a whopping 24% spike in same-store sales on a constant-dollar basis during the quarter that ended at the beginning of February 2008.
- Apple (Nasdaq: AAPL ) had no problem moving its premium-priced laptops, with market share barreling toward a multiyear high.
It has to tell you something that when Larry and Veronica decided to cut back on premium experiences, they chose to rub out Starbucks before they gave up on pricier pleasures such as organic groceries, yoga pants, and MacBooks.
Standing still in a rotating world
If going to the past is too painful, let's stay in the here-and-now. The economy is in a funk. What began as a small crack at Starbucks towards the end of 2007 now looks like the plumber working under the kitchen sink.
Surely every premium provider has to be smarting if Starbucks saw its stateside comps decline by a brutal 10%. Right? No. Not quite right at all.
- Sirius XM Radio (Nasdaq: SIRI ) closed out the quarter with 82,945 more subscribers than it started with, and the satellite-radio operator competes against free content.
- Chipotle Mexican Grill (NYSE: CMG ) posted a 3.5% uptick in comps, and you can pay a fifth of Chipotle's ransom to get a value-menu burrito at Taco Bell.
- And, once again, Apple had no problem growing its top line, and this was during a period that saw iPhone clones hit the market and dirt-cheap netbooks sell briskly.
So why is Starbucks dancing to the wrong beat? Why doesn't it realize that its model is broken? Blaming the economy or perceived experience value are arguments that sound great for shareholders. But I don't buy the argument that consumers will flock back to Starbucks in droves when they have a little more pocket change. Consumer habits do change, of course, and they may very well be shifting during this recessionary lull.
Green Mountain Coffee Roasters (Nasdaq: GMCR ) sold 711,000 of its Keurig single-cup brewers this past quarter, 121% more than it did a year ago. How many appliances with up to triple-digit prices saw their sales double during this moribund holiday season? Not many, I'm sure.
For the equivalent of roughly $0.40 for a K-Cup refill, consumers have access to more than 200 premium coffee flavors from several leading coffee-blend marketers. Can it be that the java-sipping experience itself has been altered, transported to the convenience of home brewing at a fraction of the price?
Starbucks was never the closed ecosystem of the Apple iTunes Music Store or the only game in town for satellite radio, the way Sirius XM now is. It educated the market on the European nuances of premium coffee, but perhaps it taught its fans too well.
The problem at Starbucks isn't that Larry Latte and Veronica Venti are dumb. No, it's far worse than that. The chain's problem is that Larry and Veronica are too smart.
How do you feel about Starbucks as a long-term investment?