Starbucks: Who's Buying $5 Lattes In This Economy?

I think a lot of people think twice about spending $5.00 on that Starbucks (SBUX) daily addiction, but they still do it.

There are a ton of Starbucks stores out there. Sometimes two on the same block. And in NYC, I still cant find a place to sit when I enter one. Is Starbucks selling coffee or something else ?

Starbucks just like every other retailer who gets it is selling an experience. They are selling more then coffee. They are selling or providing a meeting place, an at home workers office, a place to hang out , and a place to download music. ( Yes with an Apple (AAPL) iphone you can now download the songs that are playing at that location with a touch of a button.

Starbucks is a great experience. I dont even like coffee or tea ( make mine a hot chocolate with whipped cream please) , and I love to visit a store every so often, just for the club like feel they create. Even Mcdonalds (MCD) wants in. They are creating a model to compete for the coffee bean crowd.

Starbucks has the cool factor though. I think the brand is very well established and will continue to sell the lifestyle concept and take advantage of the market that does not mind shelling out five smacks for a bit of warm ecstasy.

The stock is close to a 52 week low. I say buy the stock and hold off on that organic sumatra peru blend grande that you might have to take a second mortgage out for. There are plenty of others who will buy it and make this stock go back to its highs again.

Disclosure- I am long Apple, do not hold a position on Starbucks nor Mcdonalds at this time. I do sometimes trade all of them for myself and clients.

Comments

[BSCLossMan:]

Don't forget all the Caribou coffee stores, also, and their coffees are better (my opionion) than Starbucks. Who buys this stuff? Me & lots of people. What, I think, analysts don't take into consideration, is that no matter how poor the economy, a $3-$5 coffee drink makes one feel rich, even for a brief, shining moment.

2008 Apr 17 05:50 AM

[BSCLossMan:]

Oh, and I forgot one thing: I have no idea if the Starbucks stock is worth buying. I leave that to the experts. I'll just drink the coffee.

2008 Apr 17 05:52 AM

[Jason Tillberg:]

I was in Shanghai China for 2 months and just returned on Sunday. Starbucks there are plentiful as well and they too are typically very crowded. Prices were also relativly high. I have no position in Starbucks, but it is starting to look attractive finally after about 5 years of overvaluation.

2008 Apr 17 06:59 AM

[Walt17:]

Coffee is one of life's necessities! Traffic in my local Starbucks is picking up after being down for about a year. Apparently there is a limit to how long people can do without. Having tried McDonalds new coffee, I do not believe they are going to be as big a threat to Starbucks as many thought.

The stock looks like it is at a good entry point. I just bought.

2008 Apr 17 08:30 AM

[The Sinking...:]

I'm not sure if "organic sumatra peru blend grande" is supposed to be a joke or if it just illustrates the author's ignorance of the Starbucks menu.
Anyway, I have to question, if Starbucks, featuring cookie-cutter design, overworked minimum-wage immigrant employees, absurd prices and nasty restrooms, is your idea of a positive experience, where you would have to visit, to have a negative experience.

2008 Apr 17 10:32 AM

[bearfund:]

Walt17, one of life's necessities?! I guess you're joking. Surely even Americans know the difference between a bag of flour or a gallon of heating oil and a $5 cup of coffee. Right? Right? If not, I'd better brush up on my golf game: my long gold and oil, short Treasuries strategy is going to have me retiring a lot sooner than I'd expected.

2008 Apr 17 10:57 AM

[JasonR:]

Plenty of places make better coffee than Starbucks, just like plenty of places have better food than McDonald's. However, both are the most efficient (by a long shot) providers in their niche.

Re: Sinking Mermaid, I can say I've noticed the same thing, but Schultz definitely intends to improve the Starbucks experience all around.

Also, people can continue to patronize coffee shops and saved money by opting for brewed coffee an otherwise cheaper/smaller drink. Usually I spend exactly two dollars since my change goes in the tip jar.

2008 Apr 17 03:30 PM

[Rule_62:]

My friend has a business employing $7/hr people. They smoke and go buy lattes at break. Howard Schultz calls it an 'affordable luxury.' People who can't afford them still buy them. And the Starbucks I go to have clean restrooms and are comfortable places to visit. McD's may get comparable coffee, but the ambiance is not near as nice.

2008 Apr 17 06:41 PM

[Johnny_Vegas:]

I am annoyed that every article about starbucks overstates the price of their coffee with headlines like "$5 Latte" or "$5 cup of coffee".

I don't know about you, but I get a grande coffee for 1.90 + tax nearly every time I go. But you never see articles stating "Time will tell if Americans keep paying for $2 coffee".

It appears the formula for financial commentators is "pick most expensive drink on menu (Frappucino), round up to nearest dollar".

2008 Apr 18 03:58 PM

[User 181392:]

I coincidentally bought SBUX yesterday for similar reasons. It looks like a great bargain and I've always wanted to own the company. I think Buffett should buy them. Then he could sell starbucks coffee at DQ.
Ralph

2008 Apr 21 08:38 PM