Saturday, July 29, 2017

Are People Getting Tired of Starbucks? Or Maybe They Can't Afford It? (I Can't!)

Starbucks earnings and sales are down.   Has the trend peaked?

The problem with being trendy is that you are at the mercy of the next trend.  Thus, you keep having to morph your business to catch the next trend or die.   And perhaps that is one reason why Starbucks has morphed from a gourmet coffee shop to an ice cream shop - selling coffee- and tea-flavored ice cream drinks topped with whipped cream and caramel - all with made-up Italian-sounding names.   I don't know what the hell it is they are selling these days, but it sure ain't coffee.

I gave up on Starbucks a long time ago.   When you log every purchase you make on the computer, it gives you time to think about how much you spend and spent.   And when you see a charge for $15 for a trip to Starbucks, you wonder why coffee costs so much.   And back in the 1990's, when Mark go there with his friends from the Real Estate Agency (one of whom would always "forget to bring their wallet") such charges were the norm.

The last time we went to a Starbucks was about a month ago.   We hadn't been in years, but there is one out by the Interstate in a truck stop of all places.   It was pretty much like all the others we've been to over the years.   You go into the place and immediately your anxiety level rises.   The menu is confusing and difficult to discern (by design) and while you are ordering, some Yuppie is trying to elbow you out of the way.   Total lack of personal space.

The clerk (and that's all they are is clerks, not "Baristas") acts like you ruined their day by entering the shop.   They act like making you a cup of coffee is some onerous chore akin to working in a salt mine.  Think about it - have you ever seen a happy and cheerful Starbucks employee?  The video above, which can also be found here, sort of sums up the Starbucks experience, and also illustrates that I am not the only one who finds Starbucks to be a mystifying and unpleasant place to order coffee.

But the cost is the real deal.   Mark likes a coffee in the middle of the afternoon, so we go on the way from the camper storage place.   For a simple "small" coffee, the charge was $2.49.   This may not seem like much, but of course they expect a tip on top of this bringing the total cost to over $3.   If we each ordered a cup, it would be over six dollars, and if one of us had a Latte or other fancy drink, the cost would be over $10.

I can buy a pound of coffee for less than that.

I have noted time and time again in this blog that the middle-class was not "robbed" by the 1%'ers  but rather gave all their money away to them by doing stupid things like buying status cars, status clothes, status shoes, status phones, status food, and status coffees.   I know many middle-class people in this country who would not think of waiting until they get home to have a coffee, but instead indulge themselves with a $5 drink at Starbucks.   And on the way home, they stop off at Whole Foods or some other "upscale" luxury food market because that is where people of their caliber shop.    Shop with those hoi polloi at Wal-Mart?   Never!  In fact, they've never been inside!

Perhaps this attitude is wearing off.  Or perhaps the "cocooning" predicted by Faith Popcorn has finally kicked in.  With so many people staying at home, working from home, or never traveling far from home, the opportunity to shop at a Starbucks has diminished.   If you have stopped going to the mall to buy shoes, but instead shop online, then the Starbucks next to the mall loses your business, along with the food court.   Some are calling this the Amazon Effect, but I would not be so grandiose.

Perhaps people are realizing that spending $5 a day at Starbucks, over a 45-year working lifetime, could mean $557,996.97 in your retirement account.

In any event, same store sales at Starbucks are off, and earnings are only holding steady because of increased business in China.   But of course, as every other American company has found out, once you start making money in China, they copy your business model, and then the Communist Party finds some way to accuse you of malfeasance, and your business is ripped out from under you.  GM should keep this in mind with its two-state solution (China and US) for sales.

The problem for Starbucks is that they are not selling oxygen.   They are not selling something that you need to live and thus are always at the mercy of the next economic downturn (coming soon to a country near you!).  As we learned from the last recession, the first thing people drop when the shit hits the fan is discretionary spending - things like entertainment, casinos, restaurant meals, and overpriced coffee drinks.

"Earnings Week" this month has been an interesting beast.  Many companies are reporting higher than expected earnings or at least meeting earning targets.   But with each report is that damn asterisk, noting one-time charge-offs, tax situations, or growth in other markets.   The Trump Recession will happen, not necessarily because of anything Trump does, but because business is cyclical and we are due for one.   But given what Trump is prone to doing, I suspect he will exacerbate the next recession, which does not bode well for the 2018 election, at least for the GOP.