Brother, can you spare a nickel?In a sign of the oh-so-like- the-Great-Depression times, Krispy Kreme Doughnuts (NYSE: KKD) franchises in Seattle, Washington and Portland, Oregon, along with other related franchisees in the Pacific Northwest and Hawaii, are selling coffee for five cents. The one-per-customer-per-visit bargain is being named the Krispy Kreme New Deal.
I love the concept. Dunkin Donuts has been offering lattes and breakfast sandwiches for 99 cents in the afternoons to boost traffic in the slow time; and Starbucks (NASDAQ: SBUX) is about to roll out a "gold card" good for 10% discounts on all products. The card, which carries a $25 annual membership fee, is not a credit card but is a parallel program with the regular Starbucks gift card, which allow you to receive bonuses (a free flavoring or other upgrade for your latte beverage, for instance).
Unfortunately, the two simultaneous and mutually exclusive card programs are confusing and a scant benefit. Customers used to buy 10, get one free punch cards at independent coffee houses will see quickly that paying for a 10% discount is hardly a great deal.
According to Starbucks partners commenting at Starbucks Gossip, the customer has to pick which card to use based on which discount would be better; so if you want to maximize discounts, you would have to carry two separate balances (essentially letting Starbucks earn interest on more of your money). Even if you can pay cash to get benefits (as suggested in the Seattle Post-Intelligencer article linked above, although it seemed as if early gold card users weren't able to), it's nonetheless confusing and a lot of work. Paying for the card is a commitment to spend $250 at Starbucks and, while this is likely the monthly budget for many customers, it's a large number that would further cement the company, in the eyes of occasional latte drinkers, as the spendthrift choice.
If Starbucks wishes to keep up with its competition (and with Juan Valdez cafes opening in many major markets, the chain is going to have to start dancing), there is going to have to be some movement on prices. Not just movement for its best customers -- the ones with the biggest disposable incomes -- but its occasional customers, its customers-who-may-be-losing-their-jobs. The ones who are worried in this down economy, who are having to scrimp to buy coffee in the face of rising gas prices. The company has set the worldwide bar for coffee beverage pricing, without simultaneously setting the worldwide bar for coffee quality. If the credit crunch hits Visa and Mastercard -- as it's almost certain to, according to most economists -- many Starbucks customers will soon discover their spending ability is not infinitely expandable, and stop shopping. If Starbucks were to institute a 50-cent across-the-board price cut, and make the $1.00 drip coffee a regular menu item, it would begin to compete with Dunkin Donuts and Krispy Kreme.
The thing is: Starbucks coffee is not that good that it should be vastly more expensive than at its doughnut-focused competitors. Today Dunkin Donuts announced that, in an independent taste test, its coffee beat Starbucks House Blend. As I wrote in that post, Starbucks is being squeezed by good-quality, low-priced coffee from the doughnut shops on one end, and some higher end customers' preference for more snooty, single-estate and direct-trade coffee on the other end. Add to that the credit crunch and you have a coffee company in need of lower prices.
It's time to rekindle old-fashioned prices for coffee everywhere, and Starbucks had better jump on that stagecoach or get left without a homestead in the new, old economy.
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Reader Comments (Page 1 of 3)
10-22-2008 @ 6:32AM
stan said...
Starbucks was created as a niche market destination for the new wantabe class. As that group has matured they realize exceedingly over priced coffee from Starbucks is wasteful and not necessary. At the same time competitors have broken the Starbucks code thus breaking Starbucks back. I used to have a cup of Java at Starbucks near my office. Right beside starbucks there is a waffle house. Maybe not the same atmosphere but the coffee actually tastes better. Its much cheaper and I can drink all I want for one low price. Just an example. Its time for Starbucks to change just about everything or fade into the sunset.
10-22-2008 @ 6:46AM
Ardis said...
Anyone who buys coffee at Starbucks is not only lazy, but stupid. You can make the best at home, and then use a thermos if you need more to go! Don't these people realize how much money they are wasting over time? It's ridiculous.
10-22-2008 @ 12:20PM
KJK said...
HILARIOUS.........THATS NO LOSS LEADER, ITS WHAT THEY BUY IT FOR FROM THE ROASTER
10-22-2008 @ 8:19AM
Paul said...
Never been to Starbuck's coffee house. I can make as much as I want, as good as I want, and that tastes much better at home. I also can buy a package of coffee for less that they charge for one cut. They have been running a rip-off too long.
10-22-2008 @ 8:51AM
Anon said...
I've had starbucks before, and it is delicious, but also outrageously expensive. There is nothing wrong with going to Starbucks for the occasional pick-me-up once a while, as long as its no more then twice a month. Otherwise, yes its a complete waste of money.
10-22-2008 @ 8:50AM
48rulz said...
Something that actually makes sense? A retailer offering this kind of program is destined to succeed, however, the moment success is realized, the price will go right back to where it was or higher. I suggest to stop buying it immediately upon the first price increase.
10-22-2008 @ 9:08AM
Chelle said...
I don't know why people are so concerned with Starbucks and whether or not people waste their money there. I stop at Starbucks occasionally for Chai Tea Latte because I can't match that taste myself or find it anywhere else. So if I'm "stupid" enough to waste $3 or $4 purchasing it, what do any of you care? I'm the dumb one right?! LOL
10-22-2008 @ 9:09AM
Christina said...
Build More DUNKIN DONUTS in FLORIDA....We need them badly.
10-22-2008 @ 9:12AM
Fritz said...
For many years I very much enjoyed my McDonald's "Morning Blend" morning coffee. I Just say at the drive up window: "One small Senior coffee with 2 creams" Recently the senior coffee price was raised to 63 cents, from 52 cents. Why are so many people so stupid to pay upwards of $4 for some fancy-dancy sugar filled, shaked or steamed coffee drink is beyond me????
10-22-2008 @ 9:41AM
Kat said...
I agree with the previous post....McDonald's coffee, which used to be nasty, is now GREAT....and much cheaper than Starbucks. Another source of very good (and cheap!) java is Radiant gas stations....always hot, always fresh, and usually at least 8 different varieties to choose from, including flavored and "hyper-caffienated". I only purchase Starbucks when I have to (airport kiosk)...in my opinion, it is over-hyped and over-priced.
10-22-2008 @ 12:53PM
jennifer said...
I feel nobdy is stupid if they want starbucks coffee, yo have to look outside of the box to save and the reasons you go there. myself i enjoy the music, the conversaion, addressing me by name. myself i order just acup of coffee and the second refill in .50 so for about 2.00 bucks and some good conversation and a time to chill out, its worth it to me.
10-22-2008 @ 9:44AM
Rita said...
Fritz: I totally agree that McDonald's has great coffee. Besides their regular coffee, however, they also sell those "fancy-dancy sugar filled" drinks now.
I agree with those of you who say the best can be made at home & thermosed. Though not necessarily cheap, that would depend on the brand(s) you buy.
As for chain drive-thrus, I prefer "Sweet Bay Coffee Company."
10-22-2008 @ 9:58AM
Jason said...
We live in central Indiana and just got a Dunkin' Donuts here, first time in about 20 years we've had one here. The donuts are just under a dollar each, with a dozen being about $11.50, and a cup of coffee is just under $2. We have two Starbucks here (they just built a new one) and they are just outrageously priced. Expect to pay $5.50 for a latte or $3 for a regular "coffee of the day". Usually the coffee of the day is so strong you can't drink it anyway. I did complain the last time and they gave me one for free, but it was just as bad. As far as the chai latte, you can go to Sam's Club (ya, I know, Walmart...) and get a powdered mix brand called Mystic Chai for about $7. It tastes just like Starbucks and is actually the same stuff they use. (I saw them pull out a can once and asked the guy where they got it and he told me they get it at Sam's) The best value for coffee that we've found is just going to the store, picking up some 8'o clock bean coffee in whole bean, grinding it ourselves and using a Bunn. Costs about $8 for a 3 lb bag and lasts this daily drinker over a month.
10-22-2008 @ 9:52AM
jrm said...
best coffee in kansas city mo hands down in broadway coffee shop...put starbucks next door out of business....best ever...second best is the little coffee shop in wamego kansas....no bitterness and the barista is very talented....
10-22-2008 @ 10:10AM
Josh said...
I think you guys are missing the point. Beside's great coffee, Starbucks is not only about the coffee, its a package deal. They are selling the whole experience..."It's a neighborhood living room". A place to meet, a place to unwind, a place to just relax and hang-out. It has a sence of belonging and a separate culture of its own. Please tell me one other coffee vendor that comes remotely close to this (other than Pete's Coffee and Caribu Coffee--both of whom charge about the same as Starbucks).
10-22-2008 @ 10:09AM
joannReid said...
i make better coffee at home and considerably cheaper....if going somewhere and i want more , i just put it in my little thermos and off i go...it is silly to pay so much for a cup from starbucks....further...when i eat out....i order water to drink...it is healthier and so much cheaper than their overpriced drinks......including coffee.....tea...soda...etc....
10-22-2008 @ 10:12AM
Dave said...
Here's an idea, get yourself a thermos bottle, buy a can or jar of coffee...perk or instant for about $5 to $8 ....boil some water in the AM....you get about 5 cups of coffee or more. One big jar of instant last me about a month! That $5 a day cup for "Star$$ck's" stays in my pocket!!!
10-22-2008 @ 10:20AM
beth said...
josh: starbuck's creates a "neighborhood living room?" !!! are you serious? starbuck's is a pre-fab plastic-coated version of a good old fashioned neighborhood coffee shop. it's a commercial. it's fake. why don't you go to a REAL neighborhood cafe, one that's owned by a neighbor, and have a real coffee-house experience.
you've been duped, friend.
10-22-2008 @ 10:48AM
Shannon said...
I have a couple of comments. First, I would rather lick the floor than drink instant coffee, nasty stuff, but I do enjoy my Great Value (read Wal-Mart brand) french roast coffee daily and a large can runs me less than $10.00. As for the coffee house experience. I get that with Starbucks, indipendant coffee houses are far and few between in Oklahoma. And Starbucks do offer a community service. Deaf coffee chats are held weekly at Starbucks in the Oklahoma City area. A different Starbucks each week, rotating between four area franchises.
10-24-2008 @ 9:43PM
Ray said...
First of all, there are no longer any Krispy Kremes in my area-they all went out. Dunkin Donuts went in one fairly new spot, and I suppose they are doing well.
I think all these establishments should be charging less for their coffee, just like the old days. 5 cents sounds reasonable to me- it can be their "loss leader" Mc Donald's had a special-then they raised their price-reasons I can't guess why. As for Starbucks- they are very unnecessary-pricing themselves right out of business.