Do We Have Something to Fear?
While Starbucks closing 600 stores is certainly big news, it’s not entirely unexpected. The coffee chain has turned practically cannibalistic in its attempts to gobble up all remaining coffee demand as Stephen Colbert so eloquently illustrates. Plus, given recent competition from budget-minded competitors, McDonalds and Dunkin’ Donuts, it’s no wonder that Starbucks has been forced to look to foreign markets for growth. (Fortunately, it no longer has to grapple with breakfast sandwiches co-opting coffee’s aroma!).
The alarming part of the story, however, is the way that the current economic downturn appears to be threatening coffee consumption more broadly. This article from The Australian describes people tightening their belts (in more ways than one I suppose) by cutting back on $5 frappelatteccinos, while Reuters reports that rising supply costs may have been a key contributor in Starbucks’ decision to close stores. What implications do these factors have for the coffee industry? More specifically, what implications do they have for the specialty coffee industry that this blog likes to review?
My fear is that a depression-style dash towards economic self-preservation will end in lower demand and thus decreased coffee quality across the board. If we’re not careful, we’ll end up accelerating the kind of intellectual degeneration predicted by the poignant, but painful, Mike Judge movie, Idiocracy. Here are a few examples of what I mean.
A Sense of Humor
NPR’s Marketplace recently did a piece on Kraft. Yes, the same company that own the Mac and Cheese. It also happens to own the dreaded coffee Maxwell House. Market place commented in the fact of rising costs: “Coffee at Starbucks starting to seem like an extravagance? Kraft is there with Maxwell House.” To be fair, the folks at Marketplace were paraphrasing Kraft, but aren’t people willing to pony up the cash to avoid drinking Maxwell House? Before I stoop that low, I’ll probably switch over to this stuff instead.
Or what about this CNET review of a Capresso Mini-S “espresso machine?” I could probably devote an entire entry just to the absurdities of this review, but I was a little let down to see that a major technology website got things about espresso machines so wrong. What are these untold dangers of pump operation to which the reviewer refers? And please link through to Capresso’s own website for several hilarious (and hopefully translation-based) errors in the description of this machine.
And just as in the movie Idiocracy where Starbucks has turned into a chain of prostitution shops (please don’t ask), it looks like coffee may be starting to require an extra bit of pizazz to entice the customers into their stores. Of course, if that doesn’t work, coffee shop owners can always resort to using coffee a weapon, possible selling it later on the black market for extra cash.
A Sense of Proportion
Fortunately, there does seem to be a silver lining. This article on Peet’s recent profits suggests that Starbuck’s problems may be more a singularly of their own making than anything based in the economy. Plus, this Washington Post article explains how the downturned economy seems to be leaving independent coffee shops mostly unscathed. In some cases, they are even doing better with fewer Starbucks around. This type of loyalty toward independents is well-illustrated by Starbucks’ recent announcement that it will also close 61 stores (roughly 73% of all their stores) in Australia. Starbucks was never able to establish a foundation there because of the culture around high quality coffee.
I don’t know the precise underpinnings of the market behavior that allows specialty coffee to thrive in the face of an economic downturn, but if I had to sit in the economic armchair, I’d posit two key factors. First, coffee is relatively inexpensive while also being pleasurable. Consumers likely find that treating oneself to a good cup of coffee is a welcome break in the midst of tough times and worth the extra penny. I can even hear Mark Prince expounding on the relative cost merits of a good cup of coffee compared to a bottle of wine or fine spirits. Of course, I don’t know what implications the downward trending economy has for bags of this year’s pricier Esmerelda Geisha, Biloya and other high-end coffees just now hitting the shelves at a roaster near you. We’ll have to wait to see on that one.
Second, the latte-swigging demographic most typically associated with voting for Obama is likely somewhat more immune to recession than others in the population. I wouldn’t be surprised to see figures indicating that people who tend to patronize specialty coffee trend towards jobs in an even higher than Starbucks income bracket that is even more immune to economic downturn. Or that they fit a breed of urban hipster/artist who is situated in a less lucrative but often similarly insulated field. Sadly this means that there may be a coffee/income gap that will only widen as economic times get worse, Ritual/Blue Bottle customers consuming coffee in comfort, while former Starbucks patrons scrounge for a few remaining grounds of Maxwell House. This is all highly speculative, of course, and hopefully not true. It would be nice if specialty coffee weren’t just a pleasure of the privileged (and the liberal).
It seems that the take-home lesson is that coffee, especially speciality coffee, is safe from the kind of economic hard times that currently confront us. Coffee is immune to these kinds of ups and downs, just like the dot com industry or the housing market or fuel prices or…um…Hey! Does anyone have any extra bags of Finca Matalapa that they’d like to deliver to my underground storage bunker?