All the late-night jokes about Starbucks (Nasdaq: SBUX) and its overpriced bean water will have to end if the chain is serious about expanding its test of $1 cups of coffee. The company has sold eight-ounce "short" servings before, quietly, in the same off-menu way fast-food buffs can get freaky at In-N-Out Burger.
Now that the "short" cup of coffee and the $1 test are being publicized, has Starbucks launched a price war against its burger-flinging, doughnut-bagging, Slurpee-pouring competition?
Doing so could create a prickly downward spiral for the java giant. Burger chains such as Wendy's (NYSE: WEN), Burger King (NYSE: BKC), and McDonald's (NYSE: MCD) have mastered the art of barbell pricing. They load up the menu with dollar-menu offerings but offset them with premium salads and chicken-breast sandwiches.
No one will confuse a small cup of joe with a fancy Frappuccino, but this move will work only if Starbucks is set on introducing a wider line of premium products. It probably has to differentiate itself with more than just beverage type. Starbucks is beefing up its food offerings. That's one way to make the barbell work, but it also risks the dilution of the Starbucks brand as a premium coffee maker.
After McDonald's announced it will have its own baristas dishing out fancy coffee drinks, Starbucks could have gone on the defensive. Instead, it's pushing ahead with confidence. But even if it didn't, we still probably wouldn't be seeing the end of the world as Starbucks knew it.
Briefly in the news
And now let's take a look at some other stories that shaped our week.
- A week after Apple (Nasdaq: AAPL) failed to wow the market at Macworld Conference & Expo, it also failed to wow the market on the earnings front. Despite a healthy quarter, Apple's near-term outlook fell short of Wall Street's expectations. If Apple is being dubbed unhip, what hope do the dweeb-driven tech companies have?
- CEO Meg Whitman is stepping down at eBay (Nasdaq: EBAY) and just in time. The company expects to grow earnings by just the single digits on a percentage basis this year. If the stock had a feedback rating, growth investors would be slamming it right now.
- Baidu.com (Nasdaq: BIDU) officially launched its Japanese search engine on Wednesday. I wonder what the engine spits out if you punch in "Tiananmen Square." This is a great growth opportunity for Baidu, but cracking an established market is hard, especially as an away team.
Until next week, I remain,
Rick Munarriz
