Starbucks (SBUX) seems hell bent on cutting its way to profitability. It may work, but it is also possible that the economy has gone through such an upheaval that the coffee chain no longer has much of a place in the fast food restaurant business.
According to The Wall Street Journal, ?”After years of broadening its customer base and making forays into entertainment, Starbucks has made its top priority retaining its existing patrons.” But, what if those “existing patrons” have left the building?
Most of the moves that Starbucks has made involved firing people and closing stores. The firm does offer cheaper coffee and has a breakfast menu that is less expensive than it used to be, but the chain may not be able to escape the image that it spent years building. Starbucks is perceived as a place which serves the best $4 cup of coffee in the world and charges $3 for donuts. Customers who have turned away from that kind of spending may not have been into a Starbucks for a year. Convincing them that Starbucks coffee?is cheaper than the local deli may be tough.
Starbucks has certainly become more focused on its original business of selling coffee. It does not push?marketing CDs as hard as it used to. The $500 latte and espresso machines that the stores used to try to sell customers have been moved into the back room or are used as paper weights for the copies of The New York Times that the chain still?offers in most stores, but those changes are not likely to bring back enough consumers during a recession to get Starbucks revenue growing as fast as it did for the last decade.
Starbucks may put on a good show about how much it has changed its plans to increase store traffic. But, the recession is deepening and coffee that costs more than $1 a cup is a luxury. The near-term future for the company is about cost cutting and nothing more.
Douglas A. McIntyre