Is instant coffee the solution for Starbucks?
Instant coffee conjures up images of grimy break-rooms and long-forgotten term papers. It is not a good feeling. But its virtue is, it’s cheap. For less than 10 cents you can have a small cup of joe that will help you wake up or keep you going when you need a lift. Just add hot water.
So it came as a bit of a surprise when Starbucks announced that it was bringing an instant version of its famed coffee to the market. Think about it: Starbucks. Instant. The two just don’t go together in the same sentence.
The company says it spent 20 years researching how to cram its full body into an instant product. The trick, it seems, was to add “microground” beans to the standard freeze-dried coffee. By most accounts it’s better than your average instant though not as good as fresh-brewed.
But as a major initiative, this looks like “New Coke.” Starbucks is famous for premium coffee and free internet service. Instant will just, ahem, dilute this. Sure, the stock is still 50% off its ’06 high of $40, although it has recovered from last winter’s depressing levels. But as a way to recapture the magic? No.
Companies often look to new markets to recapture once-robust growth. Maybe going downscale in an economic downturn is smart, but to me it feels like a stale move.
Douglas R. Tengdin, CFA
Chief Investment Officer
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