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Starbucks, McDonald and Milk

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Went to a newly opened Starbucks at Olive and Price yesterday. This is a very nice place, compared to the one at Olive and Craig (much older). The traffic there was OK consider this was Sunday morning.

A lot things are against Starbucks business lately, according to a guest at CNBC this morning.

1) The competition from McDonald and Dunkin Donuts. As Starbucks continue its expansion, it starts to get McDonald customer. Previously they are two groups.

2) The rising milk price (milk is a key ingredient of latte). I think the logic goes like this: corn price went up because the need for bio-fuel; cow eats corn to produce milk, the cost of raising cow went up; …you get the picture.

3) Starbucks is doing other things such as adding bakeries, selling music etc. Bakeries’ margin is much lower than coffee; as to music, I think traditional CD sales is losing to Apple’s iTune.

So, Starbucks has to come back to coffee, or latte to be exact. 

(Update June 12) Here is an interesting interview of Peet’s coffee’s CEO, some excerpt here: “About 52 percent of U.S adults drink coffee daily, and that figure is stable. But only 16 percent of adults drink specialty coffee daily, and that number is rising. So there is a large group of people not drinking specialty coffee. In the Bay Area, about 65 percent of all coffee bought for at-home consumption is specialty coffee. But in the entire U.S., that figure is only 27 percent. So there is a whole country that has not come to it yet. That’s a huge business opportunity, and it’s at a tipping point now. Whether it’s wine or dog food, people are trending towards premium products.”

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