Starbucks No Longer a Luxury?

(MoneyWatch)  A friend of mine, on the road for business, recently found himself at a small coffee shop in South Dakota. The barista handed him a tepid cup of vile-smelling brown water. My friend smiled at her, politely added his cream and sugar, stepped outside, and promptly emptied the cup into the bushes.

Before Starbucks was around, he told me, he never would have done such a thing. He was used to drinking crap coffee. But Starbucks has raised the bar. The ubiquity of Starbucks has made us expect at least halfway decent coffee no matter where we are -- and in response, more and more players have jumped into the market. As one food industry blogger recently commented, "these days, you can get a good cup of coffee at a Chevron station."

This leaves Starbucks in quite a bind. At last week's shareholders meeting, CEO Howard Schultz spoke like the enthusiastic coach of a losing team, trying to convince his players, "We will win!!! We can do it!!!" Not only is Starbucks perceived as a luxury brand in a time when people can't afford luxuries, but the "luxury" it offers is readily available elsewhere.

And for less money. Maybe. Though according to a recent Chicago survey, some drinks at Starbucks are actually cheaper than equivalent drinks at Dunkin' Donuts.

Part of Starbucks' new strategy, in fact, is to debunk the "myth of the $4 latte," as Starbucks marketing VP Michelle Gass described it to the Wall Street Journal. "We have got to correct the misperceptions that are out there," she said.

Then again, it's not exactly difficult to run up a $4 tab at Starbucks, depending on what you order, and the same Chicago survey confirmed that McDonald's drinks were still consistently cheaper than those of Starbucks. McDonald's, of course has been aggressively perpetuating that $4-latte "myth" with its ad campaign for McCafes, centered around the motto "Four bucks is dumb."

To counter this, Starbucks is training its staff to emphasize that most drinks are less than $3, and it's also offering discounted breakfast pairings. But some analysts think cutting prices now will "sully its high-end image." Or, as another put it:

It is now an admission that everyone who has said Starbucks was too expensive was right. Had the company done this last summer it could have played it as a 'helping out the consumer' motive. Now it just smacks of desperation.

I'm curious to see what will happen with Starbucks' latest innovation -- its upscale instant coffee, Via. It's not as good as fresh-brewed, apparently, but it's better than most instant brands. On the other hand, it costs ten times more. Some tasters concluded they'd stick with the cheap crystals for now.

But who knows -- maybe in a few years, they'll up their standards and start dumping that stuff in the bushes.

Related articles on BNET Food:

• Is Starbucks Coffee Actually That Good?
• Starbucks and McCafe Bring it On with New Ads
• More Bad News for Starbucks as McCafe Moves in For the Kill
• Starbucks, Dunkin' Donuts, McDonald's: Coffee Rivals Fight Breakfast War
• McDonald's 'McCafe' Picks Up Steam, Challenging Starbucks