Starbucks A Leading Indicator?

Jonathan Last thinks so:

It’s not a coincidence that Starbucks reached its peak at the precise height of the housing boom – the inflation-adjusted price of housing in the United States topped out in 2006, Starbucks’ last year of living high on the bean.

Plot Starbucks’ stock price against the Dow Jones industrial average and you see that over the last four years, Starbucks has anticipated the market at nearly every turn. Starbucks’ stock started heading north in 2005, five months before the rest of the market started climbing. Starbucks began its decline in late 2006, just as the outlines of the recession were emerging on the horizon. And Starbucks’ stock dropped through the floor nine months before the Lehman Bros. Holdings Inc. crash sent the rest the market tumbling.

If you think about what Starbucks sells, it makes sense. By its own admission, Starbucks isn’t really in the coffee business – it sells affordable luxury, lifestyle, and a “third place” where people can gather that isn’t the home or office. When consumers get spooked, this is the first kind of spending to go. People still need caffeine in a recession; they don’t need a “third place.”

He quotes an Ad Age commissioned study that found 60 percent of Americans cut back on luxury coffee buying in the last six months. Meanwhile low-end coffee retailers have flourished. McDonald’s beat its earnings projection and at Green Mountain, an office coffee retailer, the stock is up 30 percent since October.

That via @Tim O’Reilly. Andrew Sullivan points out that “Starbucks is so desperate they’re introducing instant coffee.” Paul Constant thinks that product is diluting the brand, “Sanka you very much, Starbucks.” Spokesman Vivek Varma said the new coffee, called Via, will “absolutely replicate the taste of Starbucks coffee,” and that it is a “transformational product.”

You might recall that in January Starbucks said it will close 300 more cafes and could slash up to 6,700 jobs.