Enterprising Investor Forum

1 dollar coffee Tuesday, February 5, 2008

Recent troubles at Starbucks (SBUX) have been well documented but we were really surprised to see that they have started to test the 1 dollar cup of coffee – plus free refill – at some selected stores. Wasn’t their positioning a premium / trendy one? Are they panicking following McDonald’s (MCD) recent announcement to go after the coffee market? As far as we understood, one of the main issues they were facing was operating margins; how could this possibly help?

We assume that one of the main purposes is to try and drive some additional traffic through the stores but would this be the right target group? Probably not and we fail to see how this would link with the recent campaign to ‘going back to the roots.’

We do think that long-term, Starbucks could present a good investment, but we feel that the stock will face some more downward pressure and that there will probably be better entry points in the following months as Howard Schultz tries to get things back on track.

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