Wednesday, November 21, 2007


Increasing input costs (milk) and a slowing US economy, appear to have taken their toll on discretionary spending, as Starbucks recently reported a drop in traffic at its US stores.
The company cut its earnings estimates for the coming year and plans to slow down the pace of US store openings.

Milk prices in the US are up sharply this year, on the back of rising corn prices (Corn is used as feed grain for cattle).

Recent price hikes and increased competition from McDonalds and Dunkin’ Donuts are also possible reasons for the reported drop in traffic

Starbucks still remains largely dependent on its US business, even as it continues to expand overseas.
2006 Revenue Breakdown:
United States 79 %
International 17 %
Global Cons. Prod. group 4 %

Pressures on consumer spending are clearly evident, and as the US consumer cuts back on spending, a premium coffee retailer like Starbucks will continue to lose market share to aggressive competition.

1 comment:

caboolture said...

Actually in some overseas markets Starbucks has contracted, and quite sharply. For example, have a look at this article from 3 years ago, .

My favourite quote:
The American company admitted it had struggled in Australia's "very sophisticated coffee culture".