Starbucks and the Consumer Crunch

Posted by: Michael Mandel on January 08

My family likes Starbucks. My wife gets her customized drink from the local Starbucks at least once a day, and often twice (triple expresso, half caf, foam on the top, and a sprinkle of cinnamon) (I can’t remember whether it’s whole or skim). My son worked for a while at the same store as a barista. And my daughter—well, if I say what she likes from Starbucks, I’ll probably be accused of some Dad crime.

But now I see that Starbucks sales are slowing , and Howard Schultz has taken over again. He has all sorts of reasons why the chain is troubled—too many stores, a lack of focus, etc etc. He said: “We have to get back to what has made this company great.”

But what if Starbucks—the land of high-priced coffee—is feeling the early stages of the consumer crunch? What if Starbucks is an early warning indicator that consumers just can’t keep spending the way they have been? What if the problem is not Starbucks but the economy?

What if…?



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Reader Comments

Kevin

January 8, 2008 06:24 PM

Michael, when you were getting your PhD at Harvard, didja ever come across the term "confirmation bias"?

:)

Brandon W

January 8, 2008 07:18 PM

You could also argue that Starbucks is reaching a saturation point. Or that they're facing increased competition. On the other hand, you may be on to something. What are sales for the "luxury coffee" industry doing, as a whole?

Andre

January 9, 2008 02:02 AM

Of course it's the economy and maybe you have just coined a new indicator and maybe it is an excellent choice for a book the "Starbucks Indicator". It is a pre cursor to consumer confidence declining as well as economic growth. It was a large game of musical chairs and the music abruptly stopped and guess what.... no chairs. The consumer piggy bank of real estate equity is gone. that alone could stall the economy substantially. At least the dollar is weak so for the rest of the world the US is on sale, bring us your shoppers, your deal makers and your Euro's. maybe that will help with a "soft landing"

Mike Mandel

January 9, 2008 08:47 AM

Hi Kevin,

Nah, never heard it, lol. Remember it was an economics PhD :)

Actually, the word you are looking is "falsifiable." I try to keep my predictions/forecasts/analysis clear enough that you can figure out afterwards whether it was right or not.

Richard

January 9, 2008 02:39 PM

I do not think that we should judge the entire coffee industry by what and how Starbucks is doing. The specialty coffee industry as a whole is still growing. there are many things that are fundamentally wrong with Starbucks and their rapid growth plan. We should determine the state of the industry by the growth rate that smaller chains and locally owned shops are experiencing.

Joe Cushing

January 10, 2008 05:13 PM

Kevin,

While confirmation bias is common sense, I decided to look it up anyway. There is an interesting study about it on wiki.

Joe Cushing

January 10, 2008 05:18 PM

Michael,

I know you're not in control of how this forum works mechanically but maybe you can relay a suggestion.

You should make it work more like you tube's. On you tube people can reply to other people's comments and that person gets notified that they have a reply. Sometimes this leads to a rich conversation. I am certain it would on here.

djnasser

January 22, 2008 11:31 AM

it's not consumer crunch or sales saturation. simple: Starbucks is not everybody's everyday coffee anymore!

price = high
service = depends on location
quality = easily beatable
advertising = zero
community involvement = nada

a customer's indifference curve remains same after purchasing a starbucks grande.


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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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