Starbucks stock down, fast food is up

April 24, 2008 12:10:17 AM PDT
You can expect the price of rice to keep rising. That's a major food staple, but lattes are not. Starbucks' stock slid Wednesday in after-hours trading, after the coffee chain announced slower sales in the first quarter of the year. However, the bad news for Starbucks is a golden opportunity for places like McDonald's, KFC, and other fast food joints.

It's an acknowledgement that proves the seemingly invincible coffee giant, Starbucks, is vulnerable. The company announced its first quarter sales will be lower than expected. The CEO blamed the short fall on the economy and California's housing market.

"it's just unfair to say all of their problems are due to the economy," said Professor of consumer psychology Kit Yarrow, Ph.D., from Golden Gate University.

Yarrow believes Starbucks also has a history of operational problems that have hurt the company's reputation. Also the fact that Starbucks is considered a high-end luxury coffee isn't helping.

"The latte has been the poster boy for unnecessary consumption for a long time, so it's no surprise that's what people think about cutting out when it comes to saving money," said Yarrow.

"I used to be a three times a week user, and scaled it back," said Ed Phillips, a San Jose Resident.

Though sales are slow at Starbucks, they're picking up at fast food chains like KFC and Taco Bell. The companies are expecting a 31 percent jump in their quarterly profits. Part of the gain is because of success overseas, and the other factor is the economy.

"I just want to get as much as I can for my dollar," said Lauren Lewis, a San Jose resident.

Dollar menus and value deals are drawing people in, since consumers are looking for quantity over quality.

"You can eat for less, so you can feed the family for less," said Kathryn Gonzalez, a Campbell Resident.

Even though studies show people who go to Starbucks usually don't eat at fast food restaurants, there is an area of overlap, and it has to do with coffee. There is also the fact that places like McDonald's are going gourmet.

"Absolutely, I think some of those Starbucks customers that are looking for that morning fuel will get it at mcDonald's or Dunkin' Donuts," said Yarrow.

It worked for this coffee drinker.

"This [drink] would be the same as an iced white mocha at Starbucks and would be about $4," said Lindsey Olsen, a San Jose Resident. "It was like a dollar something here."

Price shopping is a sign of the times and for some, an economic necessity.