Another yardstick on Economic’s Health – Starbucks

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Jul 02 2008
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When I tried my first sip on that RM10.00 or US$3.00 “Ice Blended Mocha” from Coffee Bean more than 10-years ago, I was hooked. It was a trend back then to have a cup of those dark brews at least once a week but I was basically almost had it everyday. When Starbucks arrived thanks to tycoon Vincent Tan, I tried the new brew but somehow I still prefer Coffee Bean. Personally I found that Coffee Bean’s aroma and taste was “stronger”, not to mention it was slightly cheaper than Starbucks. If my old memory serves me right they have this special card to collect the leaf-stamp everytime you spend a cup of Coffee Bean, regular or large. When the card is fully stamped, then you can get a cup of Coffee Bean free although I’m not sure if such thing exists now.

In U.S. Starbucks was the favorite among the hippies and youngsters. The green-and-white mermaid brand was so popular that when it was introduced in China in 1999, the trademark-logo was immediately imitated by Chinese firm Xingbake (although the Chinese firm claimed otherwise) – the same name used by Starbucks in China. Eventually Starbucks Corp. won a two-year legal fight after a Chinese court found that a local coffee store chain had violated its trademark. Subsequently Shanghai Xingbake had been ordered to stop using its name and to pay the US retailer 500,000 yuan ($62,000) in damages.

Starbucks and Shanghai XingbakeAnyway, it appeared the glory time is over with the announcement Tuesday that Starbucks Corp. will close 600 stores next year as a result of weakening U.S. economy. I had stop playing this stock for quite some years and never looked back. And when I read about the stores’ closure, I was surprised how much the stock has depreciated since then. Although Starbucks did not specify which stores will be closed, the company said 70 percent are those opened post-2006. In another words the new decision will affect 19 percent of U.S. stores and an estimated 12,000 workers (about 7 percent) globally.

Some analysts had predicted Starbucks (Nasdaq: SBUX, stock) could get into trouble with the over-expansion plan and Starbucks Chief Financial Officer Pete Bocian finally acknowledged that between 25 and 30 percent of a Starbucks shop’s revenue is cannibalized when a new store opens nearby – a very close statement to mean saturation. Starbucks has 16,226 stores around the world with 7,257 in the U.S., 1,867 abroad and 7,102 by partners.

Coffee Bean and StarbucksSo, how significant is this piece of news? Remember I mentioned that basically all the sectors are dependent on consumers? Hence such Starbucks decision to close 600 stores is a good yardstick to tell you how much the consumers are spending and how slow the economy is. Starbucks coffee is considered a luxury items or nice to have kind of beverage and if the addicts are no longer buying the coffee, it just goes to show how bad the business is doing. Nevertheless I still love Coffee Bean.

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I work in China, and having a cup of Starbucks is considered trendy or even high-class. (It’s sometimes a pain to see rural folks queuing up in McDonalds, counting their coins to buy a Happy Meal for their kid.)

Having chatted with some US colleagues, I think in the US, Starbucks to them is more like Nescafe to me.

Anyway, I totally agree that if something so “basic” or “fundamental” like coffee chain are starting to close shops, it just shows how the economy situation is.

hello hs maths,

thanx for your comment … i guess you’re right about starbucks being their normal drinks …

cheers …

yeah this is very bad for US economy . I wonder how such basic thing can go down.

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