Starbucks Leaves a Bitter Taste

The Colorado town where I live hosts 14 free commercial Wi-Fi hot spots, according to the Wi-Fi FreeSpot Directory. Two of those are coffeehouses. The one I frequent -- Serenity Coffee -- isn't listed, but it also has free Wi-Fi access, good coffee, and a comfortable space in which to work.

I mention this because my town also hosts five Starbucks (Nasdaq: SBUX  ) stores with not-so-free Wi-Fi access supplied by partner AT&T (NYSE: T  ) . "The only requirement is that you need to have a reloadable Starbucks card to get two hours of free Wi-Fi service a day," wrote Foolish colleague Tim Otte in February.

Seems fair. But is this really worth it? Unless you absolutely love Starbucks coffee, you're better off going elsewhere to jack in. Even Tim says so: "I've just started going to Panera Bread (Nasdaq: PNRA  ) simply because they offer free Wi-Fi access that's easy to connect to."

I've heard this from far too many others, including a Starbucks barista. Wi-Fi, in effect, has become a reason for on-the-go caffeine junkies to try alternatives. Our 125,000-strong Motley Fool CAPS community is concerned about Starbucks, giving it just two stars:

Metric

Starbucks

CAPS stars (5 max)

**

Total ratings

7,300

Bullish ratings

5,763

Percent bulls

78.9%

Bearish ratings

1,537

Percent bears

21.1%

Bullish pitches

1,255

Bearish pitches

405

Note: data current as of Dec. 22, 2008

As CAPS member LoneClapper wrote last week: "Strong competition in specialty coffee will cut margins." Exactly.

The store experience is what sells the coffee, Starbucks. Wi-Fi is key to the experience. Unlock it, or risk losing ground to burgeoning beaneries such as Peet's Coffee & Tea (Nasdaq: PEET  ) .

But that's my take. I'm more interested in what you think. Would you buy Starbucks at today's prices? Would you short it? Let us know by signing up for CAPS today. It's 100% free to participate.

Warm yourself with a cup of related Foolishness:

Both our Inside Value and Stock Advisor services have recommended Starbucks stock to subscribers. Panera is a Motley Fool Hidden Gems Pay Dirt recommendation. Try any of these Foolish services free for 30 days. There's no obligation to subscribe.

Fool contributor Tim Beyers is a member of the Rule Breakers team, but didn't have positions in any of the stocks mentioned in this article at the time of publication. Connect with Tim on Twitter as @milehighfool. The Motley Fool owns shares of Starbucks and is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is curled up near a warm fire today.


Read/Post Comments (6) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 23, 2008, at 12:52 AM, TMFSpiffyPop wrote:

    Starbucks's original strategy was NOT to provide lots of creature comforts to cause people to sit around all day in the (often limited) space. I remember when we quipped -- or did I hear this in company investment presentations? -- that they weren't exactly offering the most comfortable seats *for a reason.*

    I don't know if that's still the strategy. But it's worth considering, as it is. I think a higher degree of turnover and re-using of space by more people might well be the most desirable outcome for Starbucks. So on the face of it, I'm not sure how important WiFi really is. --David

  • Report this Comment On December 23, 2008, at 1:14 AM, TMFMileHigh wrote:

    Maybe. But if that's the case, then how do you quantify Starbucks' competitive advantage? Is it the coffee? That's certainly true for my wife. But she also loves Peet's, as do I. Great company, looking for a reason to buy, but I don't understand how management defends profits from here.

    Thanks for chiming in, David. Welcome back from your Fool's errand.

    Tim

  • Report this Comment On December 23, 2008, at 7:26 AM, TMFMarlowe wrote:

    I don't know if this qualifies as data, but here's an observation to ponder: At least around here (Massachusetts), we've observed that most SBUX stores have lots of electrical outlets, while the Paneras have only two or three electrical outlets per store. Most folks with laptops will move on after a couple of hours if they can't plug in... seems like a subtle way to encourage turnover -- and likewise it seems that those Starbucks stores are inviting laptop users to linger. I figured it was a deliberate strategy on both sides, but David's comments about not offering the most comfortable furniture (I recall hearing similar from MCD once upon a time) make me wonder if there's been a change in thinking -- and if so, if it'll change back.

    Assuming that my observation isn't just a fluke of local architecture or something, that is.

    - John

  • Report this Comment On December 23, 2008, at 7:38 AM, TMFBreakerTAllan wrote:

    I think the strength in Starbucks is the consistency of the coffee and location. Routine is the key to the chain's success beyond the coffeeshop experience. And that routine can change depending on circumstance and the Starbuck customer is the one that is hurting in this latest recession. I am not so sure whether or not free wi-fi is the be all and end all to the story rather than the economy.

    Starbuck's growth started dropping with the recession, now called at the end of 07. Maybe Starbuck's is the new leading indicator?

    T. Allan

  • Report this Comment On December 23, 2008, at 8:31 AM, dgp100 wrote:

    Starbucks is the poster child for a period of massive excess we should be ashamed of. It is no longer "cool" to be part of the Starbucks crowd, quite the opposite.

    Paying $5 for a coffee will be as unacceptable to most over the next 5 years as living within your means and buying a house you can afford was the past 5 years, even for those who can afford it.

  • Report this Comment On December 23, 2008, at 9:08 AM, TMFMarlowe wrote:

    <em>It is no longer "cool" to be part of the Starbucks crowd, quite the opposite.</em>

    I dunno, the SBUX stores around here have been jammed lately. Maybe there are a lot of uncool folks in greater Boston?

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