The discounts at Starbucks
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
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
Let me know when the java giant begins hiring Starbucks greeters.
How do you feel about Starbucks as a long-term investment?
Wal-Mart Stores and Starbucks are Motley Fool Inside Value selections. Starbuckses is a Motley Fool Stock Advisor pick. The Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days.
Longtime Fool contributor Rick Munarriz can actually walk to three Starbucks from his home, but he's still not much of a coffee sipper. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool takes its disclosure policy with soy milk and a shot of hazelnut syrup.