The first Starbucks recession

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My (free) cup of Pike Place Roast, in Bryant Park

You know how all those Suze Orman/Dave Ramsey/David Bach types, when they talk about getting out of debt and saving some money, tend to start by saying you should give up that $4 cup of Starbucks in the morning? Well, Americans appear to be taking their advice, on a mass scale.

“You’ve got a consumer that clearly is under tremendous pressure,” said Howard Schultz, now 12 weeks into his second stint as Starbucks CEO, on a visit to Time yesterday afternoon. “For the first time in our history as a company, we have negative traffic this year vs. last.”


Now Schultz surely has his reasons to paint Starbucks’ recent troubles as mostly recession-related and not the result of competition from Dunkin Donuts or, God forbid, McDonalds (where the coffee is, Schultz said, “swill”). But he’s still got a front-row seat on the recession, which makes what he says interesting.

“Our U.S. business is under pressure as is every other consumer brand–except for Costco,” he said. “What we’re seeing over the last six months is less frequency. They’re not going anywhere else.”

Schultz said the downturn is worst in South Florida and Southern California, which makes sense. And he said he doesn’t really think Starbucks can make things better by cutting prices. The company tested $1 coffee and free refills in its Seattle stores in January, and wasn’t happy with the results. It is, however, trying to improve its brewed coffee, which is cheaper than the espresso-machine stuff–and there’s talk of creating some sort of self-service line for brewed-coffee drinkers sick of waiting behind the double-skim mocha latte people. (For much more on Starbucks’ revamp, by sometime Curious Capitalist Barbara Kiviat, check out this Time story from a couple weeks ago.)

The big unveiling of the new Pike Place Roast brewed coffee was this morning in Bryant Park, complete with hastily constructed replica of Starbucks’ original store in Seattle’s Pike Place Market (in the background in the photo above). I got a free cup. The guy who gave it to me told me I had to take a sip of it straight so I could experience the magic. Tasted like bitter coffee to me. It was quite good with milk and Equal in it, though.

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