Starbucks (SBUX) Fights Back, But Roasts Itself

By Joel Reese

For quite a while, Starbucks (SBUX) has been the target of attacks from, well… pretty much everyone. Now, the Seattle java giant seem to be fighting back — although they might be doing the most damage against themselves.

The number of people and companies going after Starbucks has been legion: McDonald’s (MCD) and Dunkin’ Donuts took aim at the coffee mainstay with their cheaper cups of joe. WTO protesters went all smashy-smashy on Starbucks shops in Seattle.

And of course The Simpsons took aim: In one episode, Bart walks through a mall and passes an endless line of Starbucks shops. Eventually, he  goes into a tattoo/piercing store called In and Out Piercing.

Employee: Can I help you?

Bart: I’d like to get my ear pierced.

Employee: Well, better make it quick, kiddo. In five minutes, this place is becoming a Starbucks.

So you could practically hear the rejoicing when Starbucks tanked last year — their stock dropped to below $8 per share, and hundreds of shops went to that big latte maker in the sky.

“Huzzah, the evil corporate giant is dead!” people rejoiced. I never understood that sentiment — Starbucks provides health care to their part-time workers, and just resumed their 401K-matching program. Pretty cool, no? Ok, so they became ubiquitous — isn’t that what a company’s supposed to do? Their coffee is (arguably) very good — it’s not like they’re dumping Benzene into our water supply. How can they be considered evil?

But I digress.

So Starbucks took some time, regrouped, got back “on message” (ugh), simplified their offerings (although they still sell eye-rollingly earnest singer-songwriter CDs), and now the stock is up to almost $20 per share.

And now here’s the big news:  They’ve come out with VIA, an instant coffee that tastes just as good as their regular coffee, they claim. It costs about $1 per packet. (I just went and tried it — my 30-second review is below*.)

Previously reserved for low-brow joe like Maxwell House and Folger’s, Starbucks swears VIA is just as good as their regular drip coffee. According to this article, Starbucks uses similar methods to those other, non-snooty brands — they just use better beans and have perfected the “micro-grinding process.”

So that’s the news. But here’s what I don’t get: Starbucks is offering this as a taste test against its own coffee. Repeat: In the test, you try Starbucks… against Starbucks. As Rick Aristotle Munarriz notes in this Motley Fool article, Starbucks is engaged in a self-perpetuating war. “Why is Starbucks ripping itself? Why is it belittling its barista-brewed drinks in favor of a much cheaper solution that doesn’t involve stepping into a Starbucks store?” Munarriz asks.

And I”ll take it a step further: If people say, “Yes, your regular blend is much better,” aren’t they essentially saying, “Man, this VIA sucks”? Or if they prefer the VIA, aren’t they really saying, “Hey, now I don’t have to pay $2 for a cup of your coffee — I can do it myself for $1 a cup!”

But hey, maybe this will pay off for the company maybe they can make up in volume what they are losing in price, but is it a risk you want to take? As I noted, their stock is up nearly 120 percent so far this year, and their cost-cutting plan seems to be working. So maybe this will just be a small mis-step, and the company will keep rising. Hey, Coca-Cola recovered from New Coke, after all.

So what do you think? Will you buy VIA? More importantly, do you trust the stock of a company that makes such a strange move?

*My review of VIA: I was given two small cups at the local Starbucks (which was playing Dusty Springfield’s “Son of a Preacher Man”) and told to guess which one was the VIA. I could tell pretty quickly which was the instant coffee — it tasted good enough, but it was even more “Starbucks-y” than the regular coffee. In other words, it was harsher, a little more burned-tasting than the usual cup.

The taste was definitely robust, but it also seemed a little thin and faded quickly. And here’s the weird thing: I add a little milk and sugar to my coffee, and with the VIA, the sugar taste seemed oddly separate from the coffee. As in I tasted the coffee, then I tasted the sweetness. Hmmm.

Photo courtesy of Fabiana Zonca

The Colonel’s Stock Gets Fried

Photo by Getty Images

by Erica Feldkamp, WeSeed Writer

Do you still believe the old chestnut that even bad publicity is good publicity?

Think again.

KFC (YUM) got a wing up on competition thanks to Oprah clucking about the new finger-lickin’-good grilled chicken last week. The daytime TV queen mentioned an online coupon for free chicken, which led to a 5 million person stampede on the chicken chain. You would think that would be good press, right? Wrong.

Many of the chicken-hungry Oprah watchers were left standing in some very long lines. And unfortunately, some of these folks also happened to be bloggers who ranted mercilessly about KFC’s poorly prepared restaurants.

During the week of the free chicken promotion, KFC’s stock dropped 8 percent. Coincidence? Maybe not, since similar stocks like Burger King (BKC) and McDonald’s (MCD) only dropped 3 percent over the same period. So the question begs: Did investors get skittish watching millions of freebies walk out the door, or did bloggers sway Wall Street?