Will Starbucks (SBUX) Kill Its Margins

Posted: February 9, 2009 at 9:14 am

starbucksStarbucks (SBUX) will begin offering $3.95 breakfast value meals of coffee and food. One argument against the move is that it will make the coffee chain seem too much like the local low-rent deli.

The more persuasive case against the new initiative is that making money on a $3.95 meal may be hard.  Starbucks has fairly high fixed costs which range from real estate to the fancy machines it uses to make its more expensive drinks.  If its customers begin to shift to the offering en masse, Starbucks will be up against the problem of foot traffic being flat but yield-per-customer being lower.

Or, the promotion may bring in new people. Starbucks could take a loss on every one of the breakfast packages and make it up on volume.

Douglas A. McIntyre

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