Starbucks (SBUX) Goes Down-Market With $1 Cup Of Joe

Starbucks (SBUX) will offer a $1 cup of coffee. It will test the product anyway. It will also look into offering free refills for some of its products according to The Wall Street Journal.

The theory behind the SBUX move is that it can use the price point to undercut offerings from McDonald’s (MCD) and other fast food shops which are taking business from the coffee company. But, it will also serve to bring in a group of customers that Starbucks is not used to–the average Joe coffee drinker.

Starbucks has built its brand around a sort of elitism. The company’s stores are an oasis for the middle class. People gather at Starbucks for small business meetings and chats about the family. They are a "home away from home" for those who want a little time out the office or the house.

McDonald’s and the like are very different. The customer wants to get in and out. If he stays to eat, it is not for long. Plastic chair and Formica tables don’t keep the clients around for long.

The $1 cup of coffee may bring in more customers, but the product may also undermine the Starbucks premium brand. With its stock off over 50% in a little over a year, the brand is all the company has left.

Starbucks should keeps its price the same and just put less coffee in the cup. Its customers like to overspend. And, it worked for the candy bar industy.

Douglas A. McIntyre