LOS ANGELES -- Economic woes are percolating down to Americans' morning brews, possibly to the benefit of convenience retailers. Java junkies looking to pinch pennies are sipping less-expensive coffee drinks, brewing at home or going cold turkey altogether, according to a report in the Los Angeles Times.
The shift is hurting both small-time coffee shops and giants of joe such as Starbucks, which said Wednesday that it expected lower second-quarter profit and full-year earnings than it originally projected because in-store sales and traffic had declined. It blamed the economy, not its prices, [image-nocss] for the slowdown.
"These days, I'm not about to buy a $5 coffee," Carlos Medina, a house painter from Covina, Calif., told the newspaper. Instead, Medina said he has persuaded his girlfriend to get her daily fix at McDonald's, which introduced a premium drip coffee in 2006, rather than Starbucks.
Starbucks has faced cut-rate competition in recent months from companies such as McDonald's Corp., which is rolling out a line of premium coffee drinks, and 7-Eleven Inc., which in February unveiled a multimillion-dollar advertising campaign to talk about its freshly brewed coffee, according to the report. Partly as a response, Starbucks this month introduced Pike Place Roast, a drip coffee, and has distributed coupons allowing consumers to get the blend free on Wednesdays.
"The current economic climate is the weakest in our company's history," said Howard Schultz, Starbucks Corp.'s chief executive. The company said it was being hit especially hard in California and Florida, which make up nearly one-third of its U.S. retail revenue.
Those who haven't given up the coffee-shop routine are buying less expensive drinks: drip coffee rather than a caramel macchiato, or an iced coffee instead of a frappuccino.
"Fancy coffee has had its run," said Dean Trucco, owner of Stir Crazy, a boutique coffee shop on Melrose Avenue in Hollywood, Calif.
Other folks are starting to buy their coffee in convenience stores, said David Portalatin, director of industry analysis at NPD Group, Houston. In the first quarter of this year, 19.2% of consumers going into convenience stores purchased coffee, up from 18.6% in the same period last year.
"As consumers are getting squeezed economically, [with] the overall share of their wallet going into the gas tank increases, they have to make choices about spending," Portalatin said. Consumers spent $38 billion more on gasoline in 2007 than they did the previous year, he noted.
"I'm not too picky; I buy it in gas stations now," said Garrett Wayne, a freelance artist who feels pinched because of the cost of filling his Chevy Tahoe. He was holding a tray of Starbucks drinks to take back to work but said, "The only time I buy coffee like this is when work pays."
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