The following editorial originally appeared in the Chicago Tribune:
The U.S. consumer is increasingly tapped out, and the effects are being felt in even the strongest, most resilient brands out there. Exhibit A is Starbucks.
The Seattle-based coffee chain, ubiquitous in the U.S. and increasingly a global franchise, recently delivered a first-quarter earnings report that sent many investors running for the exits like their caramel frappuccinos were on fire. The stock closed down nearly 16 percent on more than eight times the average trading volume.
Suffice to say there was investor shock over a brand that has known decades of robust growth reporting a 4 percent year-over-year decline in same-store sales. The obvious concern: Have U.S. consumers (not to mention those in China and other countries) finally hit a limit on how much they will pay for a cup of coffee?
To be clear, Starbucks isn’t the only fast-food or convenience brand whipsawed by sour consumer sentiment.
One can discern quite a bit from the fast-food and convenience-dining sectors in terms of the state of the economy and even politics. Last year, the economic narrative focused on the remarkably resilient U.S. consumer, still cheerily spending away despite inflationary pressures and relatively high interest rates.
In the past, when consumers got nervous about the economy and their household budgets, McDonald’s and other fast-food purveyors would thrive. After all, those options were affordable alternatives to a pricier restaurant downtown or even a neighborhood diner.
We appear to be seeing something new in this version of economic angst. Cost pressures — including minimum-wage requirements — have driven up the price of fast-food meals to a point where people are shocked at the counter.
Arguably no chain has proven more impregnable to this dynamic than Starbucks. But the coffee giant at long last may have hit a wall. There are locally owned coffee specialists virtually everywhere, giving consumers a truly singular experience. And when Starbucks’ prices essentially are the same as the boutique neighborhood roaster, despite the massive economies-of-scale advantages Starbucks enjoys, it prompts head-scratching.
Could a ceiling on a tall coffee of the day or monthly specials like two lattes for the price of one be coming soon to a Starbucks near you? The Seattle brain trust reassured analysts such an approach is furthest from their minds. Another few quarters like the first may soften their resolve.
McDonald’s may have some tips to offer their rivals in Seattle, having gone through more than a few of these cycles in which the Golden Arches’ prices, products or both required substantial overhaul.
It’s no sin to offer good value. Americans are practical people. We’re betting most of those who duck into a Starbucks would be pleased to see some special deals on the menu.
