Remember affordable luxury? All those daily lattes at Starbucks back when the economy was booming? Now people hoard their pocket change for the Metro bus


Howard Schultz Says Via "Resonating," in a Good Way, Amid Stable 4Q Results

Remember affordable luxury? All those daily lattes at Starbucks back when the economy was booming? Now people hoard their pocket change for the Metro bus ride home from work (assuming they still have a job).

But SBUX and its CEO, Howard Schultz, have also been feeling the pain. From the fall of 2006 to the fall of '08, the troubled company's stock fell almost 75 percent from a high of $40. (This prompted Schultz's famous "lost soul" remarks, when also he resumed the role of CEO.) But following today's fourth quarter financial results, the company's stock is trading around $20, double its low point this spring. Clearly, the company is enjoying a nice rebound so far as investors are concerned.

But for only one reason. The company lauds is cost-cutting, to the tune of $580 million, chiefly through closing excess stores (and shedding that staff). That's important, because "consolidated same store sales improved to negative 1% from negative 5% in the previous quarter." Which sounds bad. Or is that good...?

Translation: being flat in sales (or slightly worse than flat) is still pretty decent performance in this dismal economy. Or, to quote The Wall Street Journal, "The company responded to the U.S. recession by closing stores, creating a multimillion-dollar marketing campaign and retooling business practices to make its cafes more efficient."

Efficiency, thy name is Via--the sucky instant coffee mix being hawked to reluctant customers as a cheap alternative to store-bought lattes. The WSJ quotes Schultz, in a conference call with analysts, as saying Via is "resonating with customers" and not cutting into its regular coffee sales.

Okay, but does that mean anyone is actually buying the instant swill? Starbucks 4Q results, for the period ending this September, don't detail individual product lines within its revenues. The latter are down 4 percent in the U.S. this year compared to 2008, something worse than flat.

In other words, SBUX is defending its bottom line via cost-cutting, not increased sales.

Yet Schultz, in the PR blurb appended to SBUX' financials, says he's "cautiously optimistic" about the holidays, when customers might add a few checkout line trinkets (CDs, gift cards, mugs, etc.) to their regular orders. But if revenues are basically flat, or slightly worse, so is traffic. More customers won't necessarily spend more just because it's the holiday season, though all retailers depend upon that presumption. If you're out of work this Christmas, you might splurge on a tall drip, but the recession makes it tough to justify buying a $50 stainless-steel thermos for your boyfriend or mother.

Frequency of visits is what counts for Starbucks--getting people to spend more by coming more often. And while that metric isn't contained in the financial statements, Chief Financial Officer Troy Alstead tells the AP (by way of Yahoo! Finance), "We are seeing consumers coming in and spending and we're seeing the improvement across all parts of our day." However, he doesn't put a number as to how much they're spending per customer, or how often those customers return per day. (Every time you swipe your debit card, the transaction goes into an analyst's spreadsheet.)

Meanwhile, over on the invaluable Starbucks Gossip site, in a "Juan Valdez" review of the U Village Starbucks, Juan writes, "There was absolutely no mention of Via to anyone, which is surprising given the comments on Starbucks Gossip about pressure to sell Via."

That doesn't sound like increased sales. Or resonance with customers.

comments powered by Disqus

Friends to Follow