Wednesday, June 25, 2008

Singing a Sad Song at Starbucks

It was entertaining to see Starbucks state the switch to 2% milk was for the benefit of the public health, like it wasn't starting to feel such pain that it became interested in pocketing 8¢ per gallon over 300 million gallons per year.

Maybe the coup de gras was McDonalds (MCD) being rated by Consumer Reports to have better coffee -- "without flaws" compared to "burned".

Having expanded into music to try to capture spare change from its flow of customers, Starbucks now apparently admits it can't do non-coffee products competitively. Or, at least -- it can't do music. So long, sucka.

The remaining question is: with financially significant competitors like McDonalds entering the gourmet coffee business and offering bistro-style or café-like atmosphere in new-format stores (links here and here), will Starbucks still be able to charge a premium for the same beans McDonalds can process into final products with better consistency and effect?

I'm bearish on Starbucks (SBUX) as a result, but I've not gone short. Betting against crazy people puts you at war with the world, and it's a hard place to be.

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