CHESSNOID

Awhile back I wrote a blog post called Starbucks is a future indicator of the economy. That was back in November 2007 before the stock market tanked in January 2008. Here is what MSNBC states:

The world’s biggest coffee shop chain reported a 35 per cent rise in fourth-quarter earnings, with net income for the quarter of $158.5m, or 21 cents per share. Revenues increased 22 per cent to $2.4bn.

However, its US per store transactions fell by 1 per cent during the third quarter although the average transaction value increased by 5 per cent.

It cited weak consumer spending for its forecasts of 2008 earnings below many Wall Street estimates. It predicted comparable-store sales growth for 2008 of 3 per cent to 5 per cent, against its long-term targeted range of 3 to 7 per cent.

Fast forward today July 2008, Starbucks is closing 600 stores. According to the Reuters article:

Starbucks CEO Howard Schultz had said that company’s move into up-and-coming real estate markets had hurt the company as rising foreclosures left customers with less money to spend.

California, Florida and Nevada, where 18 stores will be shut, are among the states with the highest rates of foreclosure.

I actually still see lines of people in the Starbucks stores during certain times of the day, just not as long as before. Even though we are upset about the price of gas here in California being $4.50 a gallon, many of us still like to buy our coffee instead of brewing it. I actually went to Smart&Final and bought 2.5 pounds of Starbucks whole bean coffee for less than $20. This will work out to about 100 servings or a cost of 20 cents a cup.

Starbucks is in recession mode too and doing what it can to fight for its market share. They are in battle with McDonalds and Dunkin Donuts. Back in January they introduced $1 bottomless coffee. I don’t know how it fared but they seemed ready to make sure to not lose any customers.

What are Americans willing to pay for a good cup of coffee? Apparently less than they were a few years ago. Facing a slumping economy that threatens to cut into its customers’ coffee budgets and increased competition from McDonald’s and Dunkin Donuts, Starbucks is test marketing a bottomless eight-ounce cup of joe priced at just $1.

Don’t try ordering it at your corner Starbucks quite yet. The company is only offering the deal at a handful of stores near Starbucks’s Seattle headquarters. “This is a very limited test,” says Starbucks spokesman Wanda Herndon, adding that it’s too early to tell whether the company will expand the offering nationwide. For now, the cheapest brew available at all Starbucks locations is the $1.50 eight-ounce “short,” which isn’t refillable.

By switching to an offer-more-for-less strategy, the company hopes it can revive its stagnating stock price and prevent the competition from siphoning away more of its customers. Shares of Starbucks (SBUX) closed Thursday at $20.39, far below the stock’s 52-week high of $37.40. Earlier this month, Starbucks chairman Howard Schultz, who took the brand from a handful of stores to a global beverage empire of now more than 15,000 stores, came back as CEO, intent on reviving the “emotional connection” that he says customers have with their steaming cups of Starbucks brew.

I love Starbucks coffee even though it was always a luxury to buy it at the store. Now to have it so cheap at home is nice. The quality of the coffee really is good and I do notice the difference between Folgers and Maxwell House vs Starbucks. I do like all three brands by the way and keep a good supply of all 3 available depending on my mood.

As far as the stock price of Starbucks it closed at $14.34 yesterday. I will be buying shares of this company in the next couple of quarters once the general stock market has flattened out.  The stock is approaching its 52 week low of $13.33.  I think this is a good value buy, but it is all relative to how the market is doing.  I am still bearish about the housing and stock market because nothing fundamentally has changed.  I think prices will continue to trend down in both housing and stocks in general until after the presidential election is decided. The price was $20.39 back on Jan 24, 2008 when that article was published.