The Homa Files

Excerpted from Ad Age, “Consumers Skip Starbucks for Plain Ol’ Joe” By Emily Bryson York

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Americans appear to be cutting back on their Starbucks … survey results reveal that 60% of Americans have scaled back on fancy or expensive coffee in the past six months; 56% report cutting back just since the beginning of the year.

The culprit was overwhelmingly the economy, with 90% of survey respondents saying they are doing so to save money …

Those who have scaled back the most since the beginning of the year … are consumers 45 to 54, with fully half (50.4%) saying they have “cut back a lot” on fancy or expensive takeout coffee … As might be expected, those who had trimmed the expense the most were in the lower of the survey’s income brackets … But salary didn’t appear to be that big a factor among the 92% who said they are cutting back on back on expensive coffee to save money: The percentage was close to even across all income levels, including $75,000-plus.

And these are clearly Starbucks drinkers: Some 43% said they “buy their coffee the most” from Starbucks, followed by “other” at 20%, Dunkin’ Donuts at 19.7%, McDonald’s at 16% and Burger King at 1.3%.

The biggest shift seems to be in mind-set, as latte lovers trade down rather than out of their fancy-coffee fixes by drinking less, going to less-expensive places or brewing at home … This trading down seems to be affecting the coffee giants unevenly. While Starbucks has reported same-store sales down in the mid-single digits, Dunkin’ Donuts has opened more stores …

Harry Balzer, chief industry analyst at NPD Group, said sales of specialty coffee — lattes, cappuccinos and the like — were up 4% in 2008 but down 1% in the fourth quarter, when the economy really started to tank. That represents specialty coffee’s first quarterly decline since 2004 … In the meantime, prospects for low-rung coffee might be picking up. Sensing opportunity, Quick Chek … recently launched an outdoor and radio campaign telling consumers to “Cut spending. Keep drinking.”

While Quick Chek’s coffee sales were up in 2008 because of price increases, the chain’s sales were down by volume … the company is bracing for the arrival of a major competitor: McDonald’s, which is in the process of installing coffee bars in about 14,000 U.S. restaurants, a move virtually guaranteed to reshape the market once more. It will begin national advertising for the McCafe line early this summer.

She predicted that Dunkin,’ Starbucks and Quick Chek all will lose business when that happens. “Their price isn’t significantly lower, but they position themselves as a value offering … People, whether they’re feeling the pinch or not, are thinking differently about their money.”

Edit by SAC

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While the actual price of a cup of Joe at Dunkin’, Starbucks or even Quick Chek may not differ significantly consumer perceptions of value do vary, which has the effect of skewing the price/quantity value equation.  So while consumers “trade down” to non-specialty brews they are in effect trading up to brands that they perceive to provide more value.

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Full Article:
http://adage.com/article?article_id=133871

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This entry was posted on February 16, 2009 at 7:00 am and is filed under Mktg - Brands, Mktg - Trading Down. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.