No Inflation, Huh?

So there's no consumer price (for want of a better word, because this isn't the technically correct one) inflation, huh?

Last night I dropped by a Starbucks location on my way home to buy a pound of espresso beans. For as long as I can recall, it's been a $10.95 purchase.

Except last night. It suddenly jumped to $12.95.

An 18.3% price increase!

To be honest, I'd read over a month ago that the chain was going to be raising prices soon. I'd expected it last time I bought my espresso beans.

I rarely buy coffee drinks at Starbucks, preferring, instead, to brew my own espresso for cappuccinos and iced lattes at home. A pound of beans probably lasts about a month. So you'd think that $24/year more for coffee shouldn't matter.

And maybe, to me, it won't, very much. Perhaps two fewer inexpensive dinners out in a year will cover the cost.

But what about the poor schmucks who are addicted to their daily Starbucks fix? Are they going to head to Dunkin Donuts or McDonalds now? Or just spend less on something else each day?

Either way, I call this a definite food price increase. If I had a word that didn't mean debauching the value of our money (inflation), that's what I'd call this.

Starbucks, Yahoo & David Einhorn

Various business media carried stories yesterday concerning Starbucks and Yahoo. Since both were one-time selections in my equity portfolios, I was curious as to the dynamics accounting for positive, or negative, aspects of each company's current buzz.

For Starbucks, a Wall Street Journal story described the coffee roaster chain's steady stock price rise since the depths of the 2008-09 market lows, but cautioned that rising coffee bean prices could affect future profit growth.

Upon reviewing the company's five-year equity prices, relative to the S&P500, I saw that it has, indeed, reached new highs for the period.

I know I've written posts in recent years concerning the company's various strategies involving food, pruning store locations, and selling instant coffee.

But, for me, any solid, genuine rebirth of the company should be driven by revenue and profit growth. What I found when I checked my own numbers was somewhat surprising.

Annual revenue growth rates for Starbucks before the recession were in the 17-21% range. Rather robust, no pun intended. Since bottoming with the recession, the last two years' growth rates have been anemic by comparison- less than half a percent, and 8%. Profit growth rates are, of course, distorted by the recession and the chain's store closings. But pre-recession profit growth was in the 15-22% range, while subsequent growth has been negative, then uninterpretably high, thanks to such low profits in mid-2009. But from last year's first quarter to this year's, profits grew 38%. Hardly faltering.

Still, that said, two years is hardly sufficient time to declare Starbucks a consistently superior performer. Believe or not, my proprietary research has found that such performance is not rare by any means.

The question one has to ask, of course, is to what extent this is repeatable for another few years. Perhaps Starbucks' focus on overseas growth will allow it to regain an ability to earn consistently superior total returns, thanks to detatching its growth from the US economy and consumer, and going overseas for more revenue growth. With a softening US economy apparently ahead, Starbucks' domestic business could be headed for another flattening like that of the recent recession.

Then we turn to Yahoo, the other recent subject of much media attention. This time, it's not Carol Bartz in the spotlight, but hedge fund raider David Einhorn.

Einhorn has amassed a position in the company's equity and favorably commented on its China properties and recent 'shareholder-friendly' changes.

I'm sure remarks like that from Einhorn send chills through Bartz. Increased equity accumulation, requests for board seats, and a spinoff of Yahoo's Chinese interests can't be far behind, can they?

I suppose since Yahoo's equity price has been flat for so long, Einhorn is getting a bargain. Assuming, that is, his math on breakup values is correct, and he is able to effect that.

What I wonder, however, is how long his investors tend to wait for payoffs in these types of moves? Perhaps the patient, trusting nature of his investors gives Einhorn time to wait for Yahoo/Bartz to eventually come around to accept his type of bear hug.

But fellow hedge fund/company acquirer Eddie Lampert's Sears reported falling sales just the other day. His foray into retail hasn't had such a happy ending yet.

Of course, Einhorn probably doesn't want to run any part of Yahoo, so much as put pieces into play and hopefully make much, much more on the skyrocketing value of the Chinese properties than he will lose on the rest of Yahoo. In that regard, it's likely a safer play.

Assuming he can get the firm split up reasonably soon.

Then, again, I've argued that Bartz should just sell or liquidate the firm. This may be one of the last opportunities for a Yahoo CEO to create some value for shareholders from a position of any strength whatsoever. Maybe Einhorn's interest should be greeted with an accommodating attitude. It may be quite some time before another suitor with such manners comes calling.

On Research Design: Coffee Loyalty

Just about two weeks ago, the Wall Street Journal published an article by Julie Jargon (is that a cool reporter's name, or what?) discussing the results of coffee drinker loyalty research from CustomersDNA.

I kept the article because of the counter intuitive results presented in the piece, i.e., McDonalds had the highest scores on customer loyalty among the three major US chains- Starbucks, Dunkin' Donuts and the golden arches.

With my background in marketing research stretching back to my undergraduate studies in marketing, I was perplexed that an independent firm which, apparently, conducted objective research, would reach such surprising conclusions.

What would have to be true for that conclusion to make sense?

After all, nearly everyone I know who frequents Starbucks swears by it. Same for Dunkin' Donuts. My own experience at McDonalds, except for outlets located at major highway rest stops, is service so poor that their espresso-based coffees are simply not memorable.

That's when I reread the article for the second time and realized what was wrong.

CustomersDNA only surveyed patrons about coffee. Any and all coffee.

Well, for Christ' sake, McDonalds has been selling coffee for longer than Starbucks has been in business. That's not the point.

In a paragraph located near the end of her story, Ms. Jargon discussed pricing for basic, brewed coffee at the three chains, repeating the contentions of the researchers that McD's lower prices were the prime cause of their superior loyalty measures among customers.

Having realized this flaw in the study, the whole piece became of basically no importance to me. Nor, I would suspect, anyone else actually interested in how the three chains stack up competitively in espresso and non-coffee beverages.

What I can't figure out is why a research firm wouldn't understand this point and design their surveys and methodologies accordingly. After all, McDonalds entered the espresso-based coffee segment recently because of its higher margins and price points. Same with DD.

And, if you've been to Starbucks or Dunkin' Donuts very often, you would, like me, probably see very few basic, brewed coffee orders. Who cares about that segment? Sure, Starbucks introduced Via, but that's primarily for the home market.

It goes back to something my mentor at Penn's business school's marketing department, Jerry Wind, taught me so long ago. You should be able to specify your detailed research plan, down to the output tables and hypotheses tested, before going to the field with your research. But if you have failed to design the instrument and sampling plan correctly, you're already screwed.

In this case, hard as it is for me to believe, apparently CustomersDNA didn't bother to distinguish between espresso and brewed coffees.

Or did they, but one has to pay for those results?

Too bad if it's the latter, because as Jargon's article reads, and this isn't her fault, the results are, well, boring enough to make you need a cup of coffee to stay awake.

Starbucks Again- Still Trying To Talk Itself Back To Growth

I read Starbucks CEO Howard Schultz' Wall Street Journal interview in the Monday edition and immediately headed for a price chart of the firm and the S&P500 Index. Two, actually.

The first shows the two series for the past five years. The second covers a period from the early 1990s, when Starbucks went public. The two charts provide some interesting perspectives on the firm's recent performance.

In the Journal piece, much is made of revenue and profit growth from 2009, as well as even more recent growth statistics. That's all well and good if you are a prescient market timer. Few investors- even professionals- are successful at that.

What the first chart actually reveals is that Starbucks' performance collapsed much more deeply than the Index during the recent recession. It's pretty clearly become highly correlated with economic activity.

Schultz, in the interview, admits that "we were growing the company with such speed and aggression that we lost sight of the customer experience."

Translation: Starbucks won't be even attempting such levels of growth, apart from riding economic cycles, again.

Over the past five years, owning Starbucks basically got you a return not significantly different from the S&P, but with far more risk.

The second chart provides a larger view of just how volatile the firm's returns have become. Looked at since inception, we see the predictable rocket-like trajectory as the firm grew across the nation, changing coffee consumption habits during some periods of economic growth. But 2005 clearly marked a watershed year.

After that, monotonic share price growth ended. Volatility arrived on an unheard of scale, making the stock a much different type of issue than it had been. Prior price declines were nothing, in retrospect, compared to the cliff off of which the stock price fell for about three years.

Thus, the recent rebounds in fundamentals which have powered a seeming-comeback may mislead investors. Perhaps even Schultz, too.

New Growth At Starbucks?

Last Monday's Wall Street Journal featured an upbeat article concerning Starbucks.

According to the piece's author, John Jannarone, writing for Heard on the Street, the Seattle-based coffee giant is poised to display strong sales growth in the near future.

Jannarone provided a sketchy analysis to demonstrate that Starbucks has already successfully fought upscale coffee competition from McDonalds. Rereading the evidence, I'm personally not convinced of the conclusions. More likely than stealing Starbucks customers, as Jannarone seems to believe was the point of McDonalds' efforts, I suspect McDonalds is enjoying coffee sales growth that just won't now accrue to Starbucks.

The article concludes by observing that Starbucks has a 19 P/E multiple, which, while judged expensive, is teasingly hinted at being too low considering the potential ahead for Starbucks.

Being inquisitive, I constructed price charts for Starbucks and the S&P500 Index for the past 5 years and the term of Starbucks' public listing. They appear nearby.

Not surprisingly, the past five years have been tough on the coffee roaster. Exhibiting more volatility than the index, which isn't news, it ended up about flat with the index for the period. So the recent past doesn't suggest Starbucks is poised for a breakout due to suddenly-inspired management.

I've written a handful of posts since Howard Schultz returned to the firm as its CEO. Overall, he hasn't had much impact on the firm's performance in terms of leading it to consistently superior gains over the index.

Looking at the two price curves from Starbucks' public trading debut in 1993, the recent five years looks even more significant.

Prior to that time, the firm displayed consistent superiority over the index. I personally held it in equity portfolios in the past, so exceptional were the firm's fundamental and technical performances.

Viewing the firm's share price over such a long period, the recent stall looks more telling, at least to me. It fell precipitously during the recent economic turmoil. Weakening in a time of economic trouble is one thing, but Starbucks' share price did much worse than just that.

My own suspicion is that, like other growth firms, such as Dell and Intel, Starbucks has experienced its days of steady, long periods of consistently superior growth. I think investor expectations and competitions have both affected the firm's share price for the foreseeable future.

Being priced so apparently richly for such average recent performance suggests more wishful thinking than good sense. Sort of like those investors that still feel obliged to stuff Microsoft or GE in their portfolios, in the vain hope that, somehow, those aged, overly-diversified firms will somehow recapture the performances of their much earlier years.

Starbucks Expands Its "Fighting Brand"- Seattle's Best Coffee

Wednesday's Wall Street Journal called attention to Starbucks' plans to push its lower-priced brand, Seattle's Best Coffee, through various distribution channels. The wholly-owned unit, once a Starbucks competitor, is now headed by Michelle Gass, the parent's CEO's one-time strategy aide.

Essentially, rather than repeat its mistake of the past few years by taking the Starbucks brand down-market, causing temporary sales growth but diluting the brand's image, the company is tapping its lower-priced coffee brand to implement this strategy.

One pundit likens it to the Gap's Old Navy brand, but I'm not so sure that comparison works. After all, style, quality of material and price all serve to differentiate Old Navy, while, in the end, moderate-priced coffee is moderate-priced coffee.

Seattle's Best is to be marketed through franchisees, sales of beans in grocers, and the like. I suppose that, if done successfully, this Starbucks division can earn a respectable return. Perhaps, at first, it will add some growth to the parent's income statement and total return through raw revenue growth.

But, over time, what's the likelihood that a middle-market coffee roaster, competing with Dunkin' Donuts and McDonalds, will somehow break out in the segment and prove to dominate a segment known more for its very lack of distinguished flavor?

More than anything, isn't the plan to push growth at Seattle's Best Coffee an implicit admission by Howard Schultz that the Starbucks brand isn't as capable of delivering profitable growth which will enhance shareholder value and consistent total returns in the near future? That the main Starbucks brand is essentially devoid of significant opportunities for growth, having saturated its markets in recent years?

A Local Retreat For Starbucks

Last fall, I wrote this post describing the woefully inept customer service ethic at my local Stop & Shop grocery store.

Earlier this week, while visiting the store for some minor items, which I continued to do in the wake of that post, I noticed the most significant change since the fall. Or, really since the store completed its upgrade to "Super" Stop&Shop.

The in-store Starbucks kiosk/cafe is closed.

Considerable money and effort were expended on this feature. The kiosk was a handsomely-paneled, freestanding wood structure which emulated the ambiance of a Starbucks retail location. Stop & Shop employees were painstakingly trained as Starbucks barristas. A broad selection of Starbucks items, paraphernalia and coffees were on display for sale outside the kiosk.

Earlier this week, as I briefly visited the store for a few produce items, I saw massive sheets of brown paper covering the kiosk. Strips of tape cordoned off the area. It looked like the entire structure was being packed up for return to the coffee roaster.

I can't help but think this is more evidence of the overall weakness of Starbuck's strategy and management. The extreme overreach, if you will, of the brand down market to average-income Americans.

Not being privy to the business arrangement between Starbucks and Stop&Shop, I can only surmise the terms. But, certainly, Starbucks paid some royalty to the grocer for the space and/or sales volumes. Or, perhaps Stop&Shop operated it as a licensed business, paying the employees and booking the profits, while paying a percentage of the gross or net to the coffee giant.

Either way, the two must have been splitting the too-meager profits.

As I recall, the hours of the kiosk weren't the same as the store, which remained open until 11PM. Even during the hours it was open, I seldom saw more than two people at the Starbucks kiosk.

Perhaps this was simply part of the large retrenchment of Starbucks locations in process during the past year. But, given the captive grocery customers, you have to wonder what this portends for Starbucks' future growth. Evidently it just isn't penetrating beyond the upper-income segments, especially in this recession.

Starbuck's Reconsiders The Details

In yet another chapter in Starbuck's continuing struggles to recapture its former luster, the chain is now planning a significant change in what would seem to be a trivial activity. After what has apparently been intensive study of how and when coffees are brewed in the roaster's many stores, management has decided to focus on having fresher pots of coffee always available.


The Wall Street Journal reported, in a recent article,


"Instead of grinding coffee only in the morning, baristas will grind beans each time a new pot is brewed. Timers will buzz to signal when it's time to make a new batch, according to internal Starbucks documents reviewed by The Wall Street Journal.

The changes are part of the Seattle-based company's effort to reinvigorate the "Starbucks experience" in the face of competition from less-expensive rivals such as McDonald's Corp. and 7-Eleven Inc. With Starbucks' changes, customers will be able to hear the whir of grinders and smell the aroma of fresh coffee all day.


Two years ago, Howard Schultz, then chairman of the company, wrote a memo to executives blaming the chain's excessive focus on growth and efficiency for cheapening the coffee-shop experience he long had championed. Mr. Schultz wrote that an earlier switch to preground coffee had taken the "romance and theatre" out of a trip to Starbucks.

"We achieved fresh-roasted bagged coffee, but at what cost? The loss of aroma -- perhaps the most powerful nonverbal signal we had in our stores," he wrote.


Currently, baristas decide when to brew fresh batches "based on multiple signals ranging from demand (quantity), to expiration and timing," the new documents say, explaining that the revamped process "reduces this complexity by eliminating many of these signals."


The documents say that currently, "by using dedicated [containers] to brew coffee, our customers may experience a coffee outage 14 minutes out of every hour, or 23% of the time! This coffee outage occurs for seven minutes during every batch, making brewed coffee unavailable to our customers." As a result, customers can be forced to wait, choose another type of coffee or leave the store empty handed. "To solve the brewed-coffee outage problem, we must change the way we brew coffee," the documents say.


Some baristas said the extra grinding and brewing might slow service and turn off customers with added noise.

But demonstrating to customers that coffee is ground and brewed on the spot could help Starbucks maintain its premium position, especially as rivals tout less-expensive alternatives."


What struck me about Schultz' approach and concerns is that it probably won't attract coffee drinkers the chain hasn't already won over long ago. I'm not a big Starbuck's fan, personally, but I visit their stores with/for my daughters on occasion. The same people are generally in the one we most often frequent.

I honestly don't think more freshly-ground or -brewed coffee aroma will bring (back) Dunkin' Donuts' and McDonalds' coffee drinkers. It's a segmentation issue, and Starbucks long ago sewed up the segment that celebrates expensive coffee and the coffee houses in which one may linger to drink it.

Finally, in these times of government intervention into financial services, auto production and healthcare, I find it instructive how detailed and minute are Schultz' and Starbucks' managers' focus on their business.

Look again at how deeply and precisely the firm's management had studied a specific part of their operation with an eye to customer motivations and need satisfactions.

No governmental civil servant is going to do that. Yet, that's what it takes to succeed in business. Focus on customer wants and needs. Diligent, constant, detailed review of your own business' offerings, strategies, and operations.

Is Schultz right in changing the Starbucks' stores' coffee brewing? I don't know, but I doubt it. Still, he and his managers feel it's an important change to make in order to revive growth, profitability and equity value for the firm.

I just don't see that sort of combination of analytical rigor and imagination from any government hacks trying to oversee, restructure or operate significant portions of the US economy.

Starbucks Muddled Marketing Messages

Yesterday's Wall Street Journal carried a rather surprising article about Starbucks. It seems they have actually been offering some marketing promotions as long ago as last summer, wherein the purchase of a morning coffee led to a discount on an afternoon beverage purchase.

Who knew? As I noted in this post from last April, CEO Howard Schultz and his marketing chief, Michelle Gass, seemed rather confused about what was ailing their firm. They thought it was only their own strategies, and not competition. Somehow, Dunkin' Donuts' and McDonalds' explicit targeting of premium coffee drinkers escaped Schultz' and Gass' notices.

I was amazed to read in yesterday's piece that prices between Starbucks and its two main competitors, McDonalds and Dunkin' Donuts, have narrowed. That, in some instances, on a per-ounce basis, Starbucks is actually less expensive than Dunkin'.

Further, in a total about-face from removing food from their menu, Starbucks is now offering a food-and-coffee combo at a discount. But when asked about simply cutting coffee prices, Gass replied,

"Today, no. But never say never."

I guess the food reversal proves this out. But what I wonder is whether Schultz, Gass and their colleagues actually have any sort of larger marketing and product strategy in mind? Or are they just making these tactics up as they go along?

My own guess is the latter. How could they have reversed on providing food if they had done research and looked at their own customer buying information in the first place? It's not the sort of misstep you typically make if you are a data-driven marketer.

But it does smack of a sort of image- and mission-oriented marketing and business philosophy for which Howard Schultz is well known.

Unfortunately, that sort of business focus can lead to tragic mistakes, as market, customer and competitive realities are tuned out, in favor of 'the mission.'

I suppose a shareholder could be grateful that, as the nearby chart indicates, the company's equity price has pretty much tracked the S&P500 Index for the past six months. After all, this must have been a rocky period for the coffee giant, what with consumer luxury spending declining.

The question would seem to be, though, can Starbucks really manage to breakout above the index, and for a long time- several years? Because if it can't, then it has simply become another fallen star whose prospects for consistent, profitable growth are gone, and for whom competition and a saturated market spell mediocrity for the foreseeable future.

Sad to say, statistics and Schumpeterian dynamics suggest that it will be the latter.

Starbucks Shrinks!

In three posts last year- here, here and here- I discussed the failure of Starbucks' CEO Howard Schultz' growth strategy.

Finally acknowledging a slump in high-end retail sales, Schultz is cutting 6,000 store employees and 700 headquarters staff, as well as closing 300 additional stores above the 600 closures announced last year.

As I have noted in prior posts, the firm exposed itself to this sort of risk when it sought growth from lower-income customers. Those store openings and employee additions, which caused breakneck growth only a few years ago, have now had to be reversed.

The nearby price chart for Starbucks and the S&P500Index shows how the coffee roaster's equity price has fallen by some 40% since late summer, when I wrote the first post noting the beginning of its pullback. The silver lining is that it hasn't lost appreciably more than the S&P.

Meanwhile, McDonalds, which added better coffees to their menu, is running smoothly and posting gains.

Good management shows, and Starbucks clearly still doesn't have it.

Reality Hits Starbucks' Growth Plans

Starbucks is in the news again this week!



In my last post on the coffee retailer, here, I noted that Howard Schultz's vaunted turnaround, for which he returned to the company as CEO, had cratered in a quarterly loss.



This week's Wall Street Journal piece reaffirms the coffee roaster's cutbacks on US store openings, fights with landlords as it closes locations, and even a slowdown in its overseas store openings. According to the Journal piece, same-store sales at Starbucks are down 8% among the conventional 'open at least a year' category.

The nearby 3-month price chart for Starbucks and the S&P500 Index shows the coffee giant falling by more than the market average. Significantly more. Starbucks has lost nearly half its value amidst the market turmoil which began in September.

Clearly, the chain reaction of financial losses to consumer spending has now hit the upscale coffee retailer.



Back in January, I wrote a post concerning the marketing battle brewing between Starbucks and McDonalds. In it, I observed,




"To me, having followed this building story for nearly a year, Schultz' and Starbucks' logic and expectations are wrong. They expanded into more price-sensitive, lower-income segments, and are now struggling to make that business more constant. But it will be precisely those customers who are vulnerable to McDonalds and Dunkin' Donuts. Further, the changes in its product strategies is causing confusion and morale problems among Starbucks' workforce."



This is now coming home to roost big time at Starbucks. As cost-conscious, lower- and middle-income consumers flee the pricey coffee seller's offerings, the other two, more middle-market brands are likely to increase share.

It's not fair to accuse Howard Schultz of not foreseeing this financial-market triggered economic downturn. But he is responsible, never the less. As CEO, he presided over the expansion of the Starbucks brand into ever-lower income customer segments. This was bound to affect sales and profits growth come an eventual economic softening, never mind a serious recession.

Now the full import of the coffee roaster's years of breakneck expansion are coming back to haunt shareholders.

Will Schultz finally admit defeat and just accept that Starbucks' rapid growth phase is over?

Starbucks' Latest Move- Posting Losses!

Only just last month, in this post, I wrote with scepticism of Howard Schultz's most recent plan to revive the company of which he is CEO, Starbucks.

Now comes news, in yesterday's Wall Street Journal, that the coffee roasting giant posted a loss.

The retrenching on which I commented in early July has apparently been a signal that, as I predicted, Schumpeterian dynamics are catching up with Starbucks, and there is little, if anything, they can do about it.

The nearby 6 month price chart for Starbucks and the S&P500 Index shows a net 20% loss of value for the coffee giant- twice that of the index.

It was as bad as nearly 30% only a few days after that post I wrote last month.

In the details of the Journal's article about Starbuck's loss is information that the company is closing 600 US locations. And that

"The company blamed the lower-than-expected revenue growth on a mid-single-digit decline in US comparable-store sales. It described US traffic, measured by average number of transactions per store, as "slow." "

Somewhat comically, at least to me, given my prior posts regarding Starbucks, segmentation, pricing, growth, and Schumpeterian dynamics, the article reports,

"In a conference call with analysts, Mr. Schultz said customers remain loyal, but "they're visiting us less frequently as a result of economic pressures." He said Starbucks will promote value for the fall and holiday seasons, though it will stop short of bundling products at discounted prices. "We're not going to go down the fast-food lane," Mr. Schultz said."

By the way, Schultz reversed himself on breakfast offerings, now keeping them, instead of getting rid of them because their aroma masked that of the coffee in the stores.

Schultz's comments seem to demonstrate he just doesn't understand his market or his own strategy. Some years ago, Starbucks went down market to stoke growth. I noted in articles of that time that this would probably come back to haunt them, and now it is.

Then there was this year's big surprise summer drink offering. What happened to that? Sales are down relative to expectations. And customers apparently aren't buying whatever new brew was introduced.

Now Schultz is promising yet another 'just around the corner' tactical move to rescue the ailing firm.

Can't Schultz and his staff simply acknowledge that they saturated this product/market long ago? That with the more focused competition from Dunkin' Donuts and McDonalds, this market is unlikely, by itself, to be capable of delivering sustained consistently superior total returns anymore?

It's over, Howard. Just admit it, retire, and go spend the fortune you justly earned growing Starbucks in your first era as CEO.

Please stop trying to job your own shareholders.

Starbucks' Latest Move- Retrenching!

I've written nine labeled posts about Starbucks over the past nearly-three years. Perhaps more, since some are still awaiting labels.

This one, from just last May, suggested that returned Starbucks CEO Howard Schultz and his handpicked strategist, Michelle Gass, had it all wrong in predicting a sharp uptick in the coffee giant's imminent performance.

As I scan the headline of the Marketplace section of last Wednesday's Wall Street Journal, "Starbucks to Shut 500 More Stores, Cut Jobs," I see I was right.

If you go back through either the Starbucks- or Schultz-labeled posts, you will note the strong theme of continued growth at the coffee roaster. One of the recent posts observed that Schultz viewed new segmentation strategies as the key to continued growth amidst a weakening US economy.

And now this. The firm currently has 11,000 US stores. I had no idea its footprint was so large. According to the Journal article, 70% of them, or more than 7,000, have opened in the past three years.

Easy come, easy go, Howard and Michelle?

Two problems he didn't have a while ago now plague Schultz- Nelson Pelz and a customer revolt to the new signature brewed coffee at the firm. Seeking to broaden their appeal beyond espresso-based coffees, the new, more mainstream flavor is, of course, quite different and missing the robust cache of the former featured coffee.

I think I was on the mark when I noted, simply, that Starbucks is feeling the effects of Schumpeterian dynamics, and there's really not much they can do to mitigate the consequences, try as they might.

More Trouble at Howard Schultz' Starbucks

Monday's Wall Street Journal provided some additional information regarding Howard Schultz's attempt to revive the firm he founded, Starbucks.

In this recent post addressing returning CEOs, I wrote,

"In Dell's and Starbuck's cases, I question if they ever will (return to consistently superior total return performance). I believe, for reasons I've discussed in labeled posts on both CEOs and their companies, that competition, growth and simple Schumpeterian dynamics have worked to end their time of consistent outperformance."

I still feel that way. The nearby Yahoo-sourced price chart of the coffee seller and the S&P500 Index for the past five years portrays a brand that has run its course.

Typically, a firm once successful at earning consistently superior total returns will fade from either: lack of growth opportunities; competition; regulation, or; investor expectations finally catching up with performance.

Ironically, as I noted in this post, Schultz had been alleging competition had nothing to do with the firm's slumping fortunes,

Perhaps the most amazing comment Schultz uttered in the rather surreal interview this morning on CNBC was, in response to Bartiromo's question about McDonald's,

'Competition- they're just noise,'or words very close to those.

Well, as I noted in this post, regarding Schultz's recent, hand-picked strategist, Michelle Gass, contended,

"She says she hasn't been focused on competitors in developing the new plans. "I think we'd all readily admit that a lot of the situation we're in is self-induced." Sounds familiar, right? At least Gass and Schultz are reading from the same page in the same playbook.

But in that prior post, I went on to note,

"Thus, I find Ms. Gass' comment to be dangerously short-sighted and internally-focused.

Instead, she might wake up to the reality of Schumpeterian dynamics. Between Starbucks' own prior expansion into lower-income segments, and McDonalds' search for growth in kindred products, the former's market dominance was almost certainly going to come to an end, one way or another.

As it is, Starbucks is being bracketed by another coffee retailer on one side, and a fast-food giant on the other. This has less to do with Starbucks' 'self-induced' troubles than it does with recent targeting of the coffee giant's business by two very large, savvy food retailers.

I hope, for Howard Schultz' and Starbucks' sake, that Ms. Gass begins to become aware of this reality."

In this week's Journal piece, however, it reported,

"Reflecting his urgency, Mr. Schultz told workers he no longer wanted to hear about projects that would take as long as 18 months. "We have to defend our position," he said to a few hundred employees shortly after the March annual meeting. "We have lots of companies small and large who want to take a piece of our business away."

Wow. That's some fast reversal of strategic diagnosis, isn't it?

But what is truly disturbing is how personally Schultz is taking Starbuck's natural decline. As the Journal article describes,

But early last year, Starbucks seemed to be losing its edge, a complaint Mr. Schultz himself voiced in a leaked memo. It wasn't setting the agenda with new products but just adding drink flavors and ordinary items like breakfast sandwiches. Stores had grown cluttered with stuffed animals and other noncoffee items. Price boosts were starting to annoy customers.

"I was just depressed," Mr. Schultz says. He launched a personal turnaround routine, consisting of what are now six gym workouts a week and a daily health shake of fruit and cottage cheese.

In public, he appeared humbled. At the annual meeting in March, Mr. Schultz told the crowd to stop applauding when he walked on stage. "I thought I could start crying," he says.

Schultz is so personally invested in the attempt to reverse the age-old forces of Schumpeterian dynamics that he seems to simply deny their existence.

The article cites, through the recounting of many examples, how Schultz has gathered to himself the power to make even the most trivial decisions. It's reminiscent of Steve Jobs, with one big difference.

Jobs' Apple is in a business which creates new products. The best Schultz can now do, having already created a modern version of the old, original Dutch coffee house, is to introduce some marginal new beverage flavors each year.

Hardly the same thing.

It seems to me that people spend a certain amount of money on coffee and beverage purchases at places like Starbucks. Once the firm has penetrated sufficient markets, as I noted in this post, it really has little room for growth. Perhaps growing economies such as India and China provide some opportunities. But if that were all that was needed, the company would have already been growing with those countries' own growth rates.

No, it seems the problems for Starbucks lie more in the realm of simply having been successful long enough to have attracted competition while saturating its primary and secondary market segments.

I doubt Schultz' micromanagement of the firm he created will really change those facts.

But, as always, time will tell.

Some Recent Earnings Performances: Apple, Starbucks & Boeing Plus Microsoft On Yahoo Acquisition

Yesterday's Wall Street Journal contained articles on a host of interesting companies about which I have recently written. Nearby is a Yahoo-sourced two-year price chart of the various firms I'll mention in this post- Apple, Boeing, Starbucks and Microsoft- and the S&P500 Index.

For example, Apple, a company in which we currently hold long-dated call options, rose nicely following its earnings announcement.

Despite the many protestations of pundits as notable as Herb Greenberg that Apple and Steve Jobs just could not continue to surprise, they did. Even when analysts factored in Apple's expectations management, the firm still outperformed them.

This is one reason that our equity selection process is so strong- it ignores those observers and analysts who fail to appreciate actual historical performance of individual companies, opting instead to predict to the mean of all companies' typical performances.

Then we have Starbucks, whose sales have been affected by related economic softness. By going downmarket in the past few years, as I've written in prior posts, the firm exposed itself to the more price-elastic buying behaviors of less-wealthy customers. We're now seeing the results of that strategy.

Whereas financial firms purchase excess growth through asset risk, consumer goods companies like Starbucks purchase it through penetration of non-traditional segments whose buying behaviors are different than those of its core customer group.

So far, Howard Schultz' return to the coffee giant isn't going so well.

Boeing reported earnings on Wednesday, too, also announcing earnings above expectations. Consequently, its stock rose on the news by some 4.5%.

Does this mean Jim McNerney has finally straightened out problems at the airplane maker? Not by a long shot. Boeing is still counting on reversing the Air Force's decision to use Airbus planes to replace its fuel tankers, and the Dreamliner may yet suffer another setback.

Whereas Apple has gone from strength to strength for several years, as evidenced by the price chart above, Boeing has been struggling. I'd have to see a much longer period of sustained revenue growth and total return superiority before I'd believe that Boeing has solved its problems.

Then we have Microsoft. For a change, the Journal's article about the tech giant's CEO, Steve Ballmer, actually reflected well on him. Having its Yahoo acquisition offer outstanding for nearly three months, the software vendor, as represented by Ballmer, is expressing confidence that they can, if necessary, skip the Yahoo deal.

That's actually heartening to me. Not that I'm a Microsoft shareholder. It hasn't been in my equity portfolio for nearly a decade.

But Ballmer made some sense in that he has acknowledged his own firm's risk in integrating Yahoo. Citing internal reasons for not increasing Microsoft's bid for Yahoo, the CEO gave shareholders some reason for sanity in the looming hostile phase of the firm's quest for the ailing internet portal player.

As miserably as Microsoft has performed for years, it will probably only do worse as it attempts to do several new things: integrate a large acquisition, deal with various staffing exits and other related issues, and then have to actually make good on the promise that the Yahoo acquisition will somehow solve all of the firm's ills.

So, on balance, it's been a promising week for some large US companies. Not necessarily sufficient for me to invest in those I don't already own, but at least some signs of better management and perspectives among CEOs of Boeing and Microsoft.

Starbucks' Howard Schultz On CNBC Today

By chance, I happened to catch Maria Bartiromo's softball interview with Starbucks' recycled CEO, Howard Schultz. Schultz was all a twitter about today's introduction of the firm's latest beverage- a specially-designed, basic brewed cup of coffee.


As the nearby, Yahoo-sourced five-year price chart for Starbucks, McDonald's and the S&P500 Index illustrates, Schultz had better hope it delivers something big for his shareholders.


I've written at least six labeled posts about the company, and probably a few more prior to those. My most significant recent piece was this one, in January, regarding the marketing battle heating up between Starbucks and McDonalds, with Dunkin Donuts also in the mix.


Perhaps the most amazing comment Schultz uttered in the rather surreal interview this morning on CNBC was, in response to Bartiromo's question about McDonald's,


'Competition- they're just noise,'



or words very close to those.



Well, as I noted in this post, regarding Schultz's recent, hand-picked strategist, Michelle Gass, contended,



"She says she hasn't been focused on competitors in developing the new plans. "I think we'd all readily admit that a lot of the situation we're in is self-induced."


Sounds familiar, right? At least Gass and Schultz are reading from the same page in the same playbook.



But in that prior post, I went on to note,

"Thus, I find Ms. Gass' comment to be dangerously short-sighted and internally-focused.

Instead, she might wake up to the reality of Schumpeterian dynamics. Between Starbucks' own prior expansion into lower-income segments, and McDonalds' search for growth in kindred products, the former's market dominance was almost certainly going to come to an end, one way or another.

As it is, Starbucks is being bracketed by another coffee retailer on one side, and a fast-food giant on the other. This has less to do with Starbucks' 'self-induced' troubles than it does with recent targeting of the coffee giant's business by two very large, savvy food retailers.



I hope, for Howard Schultz' and Starbucks' sake, that Ms. Gass begins to become aware of this reality."

While McDonalds has not, historically, been a competitor of Starbucks, it is now. Looking at the three Yahoo-sourced charts in this post- the five-year, two-year and one-year timeframes of Starbucks', McDonalds', and the S&P's price performances- it's clear that the fast food giant has been resurgent for the entire five year period just past.


Starbucks peaked two years ago, and is now struggling to find a way to rekindle its total return performance. Viewing the two firms' looming battle, and now learning that Schultz' latest weapon is a simple, brewed cup of coffee, I really wonder if Starbucks 'gets it.'


They are in the fight of their lives. They no longer own the premium coffee product/market. At least with espresso-based coffees, they had a lot of room to innovate and maneuver.


But brewed coffee? Lower priced, I would guess. And how long will it take Dunkin Donuts or McDonald's to emulate the new flavor, if it's warranted? Dunkin already wins taste tests with its signature coffee.


The shorter time period charts show Starbucks losing 50% of its price over two years, and 40% in just the past twelve months.


In contrast, McDonalds has racked up more than 20% in price appreciation, while the S&P was slightly negative.


My point is not that Schultz and Starbucks have to perform exactly like McDonald's, but that the latter is newly-focused and on a roll, with upscale coffee targeted as one of several important new product/markets.


The end of Bartiromo's interview with Schultz saw him fumbling to handle her question about how investors should view his new brewed coffee initiative. He spat out some tired lines about returning to the firm's roots and values while pursuing international growth, all calculated to


'Return Starbucks to its traditional place in this segment,'


or something close to that statement, which is not an exact quote.


It seems, per my prior posts, that Schultz and his chief strategy lieutenant, Gass, think that all of their company's troubles have been simply a matter of self-inflicted loss of focus and failure to refresh their brand.


In fact, again, per my prior pieces on Starbucks, the truth is more complicated than that. McDonalds is certainly much more dangerous than 'just some noise.'


So is Dunkin Donuts. Starbucks' most recent target segment, lower socio-economic groups, are currently hurting economically. The firm's success has attracted two large, capable competitors.


Are we to believe that one brewed coffee blend is going to reverse a 40% slide in the firm's stock price? With two hungry competitors active in the same market?


I think it's fair to say that the bloom is long off Starbucks' rose.

Starbucks' New Strategy

Thursday's Wall Street Journal featured an article about Michelle Gass, the putative head of strategy for Starbucks' new attempts to recapture its former growth.

Ms. Gass states, per the article,

"I'm not a traditionally trained strategist....I've never worked at McKinsey or Bain."

Well, neither am I, by that measure, but I've been a strategist since my early days at AT&T. For some, strategy is an orientation and way of thinking, not a result of a specific training ground.

Ms. Gass' training and experience involves heavy interest and involvement in consumer research while at P&G, which is quite admirable. And she successfully introduced the Frappuccino at Starbucks.

So far, so good. She is now Schultz' right hand woman on the big makeover at the coffee giant.

However, one line in the Journal story left me with doubts about Gass' and Starbucks' long term success. The story reads,

"She says she hasn't been focused on competitors in developing the new plans. "I think we'd all readily admit that a lot of the situation we're in is self-induced." "

Perhaps Ms. Gass needs one or two courses in strategy, after all.

As I wrote in this post a few months ago, Starbucks is very much locked in a competitive battle with at least McDonalds, as well as Dunkin' Donuts,

"The outcome of this battle royale between two retail food giants, Starbucks and McDonalds, with Dunkin' Donuts also roaming the same terrain, will be fun to watch. If you ever wanted to view a classic marketing struggle between two fairly well-matched firms in a clearly-defined market, this is your chance."

Thus, I find Ms. Gass' comment to be dangerously short-sighted and internally-focused.

Instead, she might wake up to the reality of Schumpeterian dynamics. Between Starbucks' own prior expansion into lower-income segments, and McDonalds' search for growth in kindred products, the former's market dominance was almost certainly going to come to an end, one way or another.

As it is, Starbucks is being bracketed by another coffee retailer on one side, and a fast-food giant on the other. This has less to do with Starbucks' 'self-induced' troubles than it does with recent targeting of the coffee giant's business by two very large, savvy food retailers.

I hope, for Howard Schultz' and Starbucks' sake, that Ms. Gass begins to become aware of this reality.

Starbuck's Latest Turnaround Strategy

This weekend's Wall Street Journal's "Heard On The Street" column discussed Starbuck's turnaround strategy.

For the second time in a few days, I read an article about Starbucks in which the word "segmentation" is used in quotes?

What's with that?

The context is that, according to this piece,

"Mr. Schultz is looking at "segmentation." strategies that would provide an entry point for new customers amid a weak economy."

Now, it was news to me that the Seattle's Best Coffee brand is owned by Starbucks. I think that's fantastic, because I like that brand much better than their flagship one. And as I've written here, about Les Wexner's Limited Brands, it's can be a very smart way to market different product lines.

However, only a few months ago, I wrote this post, which noted, from another Wall Street Journal article of that timeframe,

" 'Much of that may not be Starbucks's fault. Pressures on consumer spending haven't made it any easier for Starbucks to increase sales, particularly because Starbucks's customer base has gradually broadened to include Americans with lower average incomes, a group more likely to cut back. This summer, a spike in dairy costs caused the company to implement its second price increase in less than a year.'

To me, the most telling sentences are those in the fourth paragraph which I have quoted from the article. The company, in order to sustain growth over the past few years, headed down market. Now, those less-wealthy customers are being more affected by recent economic events, including prices of gasoline and food, while even Starbucks' ingredients' price rises are driving them to increase prices, too."

So Starbucks is, in fact, looking to reposition itself with its lower-income, newer customers. Apparently through the provision of inexpensive, simple brewed coffee. The Journal piece suggests,

"...and adding a lower-priced tier inside its own stores would be tricky for a brand that built its reputation on upscale cachet."

No kidding. Mr. Schultz, have you taken a look at Wal-Mart's failed 'upmarket' retail strategy of a few years past? It flopped. In their case, new, upscale customers wouldn't rub elbows with lower ones, and Wal-Mart's merchandising was not credible.

In the Starbucks case, you can imagine hordes of teenagers fleeing Starbucks as lower-priced, un-chiche, lower-priced coffees are shoehorned into the stores.

Schultz is also ditching the breakfast sandwich menu. Surprisingly, according to the article, this accounts for about $35,000 of revenue per location per year. That equates to something like $100/day. Isn't that only about 20 breakfasts/day?

Perhaps what's surprising is that they even kept this offering for so long. And that, with McDonalds revving up their coffee offerings, along with the constant pressure from Dunkin' Donuts, anyone wanting food won't visit Starbucks at all now, when they can just buy the same thing, for less money, at either of the other two purveyors.

Schultz holds out hope for Starbucks' line of summer drinks to help it out in the second half of the year. But isn't that a seasonal effect? Don't they already have a summer drink menu?

As the article suggests,

"Starbucks was one of the first major consumer brands to be built using word of mouth- and there are few precedents for how to resurrect a tarnished brand that was built that way."

As the nearby, Yahoo-sourced price chart of Starbucks and the S&P, for the last three months, demonstrates, the coffee roaster's stock is essentially in free-fall.

Schultz has one heck of a job to try to rescue this firm. Personally, I think he's fighting the force of Schumpeterian dynamics. Competition and consumer tastes have altered the competitive and market landscapes since the firm's heyday of some years ago. It's unlikely that Schultz can regain its long term, consistently outperforming total return record anytime soon, if ever.

McDonalds vs. Starbucks- A Marketing Battle You Just Have To Love

Yesterday's Wall Street Journal featured an article on the marketing battle currently brewing (yes, I know- a bad pun) between McDonalds and Starbucks over upscale coffee.

The Journal article displayed a one-year stock price chart for the two companies. I prefer two other timeframes- two and five years.

The nearby two-year chart for McDonalds, Starbucks and the S&P500 Index clearly show Starbuck's recent decline. It was holding flat, even up a bit in mid-2006, then slumped monotonically beginning in October of that year, rising nearly without pause since then.

McDonalds' stock price over the same period is almost directly opposite. Its price was truly flat for mid-late 2006, then took off in September of that year.

The next, five-year price chart for the same entities reveals how Starbuck's decline is a serious departure from its prior, longterm trend. The red curve, depicting the coffee giant's price over time, enjoyed two years of growth which outstripped the S&P in 2003-4, then flattened in 2005-6, and began to fall.

McDonalds have been on a steady upward trajectory over the entire five year period.

With that backdrop, I found the article suggestive that McDonalds is about to take a major piece out of Starbucks' recently-earned volume growth. McDonalds' move into higher-end coffee is the next in a series of revitalizing moves that have turned around the formerly-ailing fast-food giant.

For Starbucks, however, as I've written in prior posts, here, here and here, their expansion strategy has brought new headaches, as they try to buck the natural limits to growth of their business model. To me, it seems a clear indication of Schumpeterian dynamics at work, signaling an end to Starbucks' salad days of growth and total return superiority.

Particularly worrisome, as was also voiced this morning on CNBC, is Howard Schultz' preoccupation with 'returning to the core' of Starbucks. For example, in this passage from his nearly year-ago internal memo, Schultz wrote,

"We desperately need to look into the mirror and realize it's time to get back to the core,"

Thus, this morning's announcement that Schultz forced out his CEO, Jim Donald, and is resuming that title and role at the coffee roasting titan.

However, McDonalds' push into coffee has more to do with raw market opportunity than simply competing with Starbucks. That is, as the Journal article notes,

"The confrontation between Starbucks Corp. and McDonald's Corp. once seemed improbable. Hailing from very different corners of the restaurant world, the two chains have gradually encroached on each other's turf. McDonald's upgraded its drip coffee and its interiors, while Starbucks added drive-through windows and hot breakfast sandwiches.

The growing overlap between the chains shows how convenience has become the dominant force shaping the food-service industry. Consumers who are unwilling to cross the street to get coffee or make a left turn to grab lunch have pushed all food purveyors to adapt the strategies of fast-food chains.

It also shows how the chains' efforts to adapt to a changing market have had drastically different results on their bottom lines. McDonald's is entering the sixth year of a successful turnaround, while Starbucks has begun struggling after years of strong earnings and stock growth.

McDonald's executives watching the growth of Starbucks at the beginning of this decade realized that they were missing out on the fastest-growing parts of the beverage business. Data showed that soda sales had flattened while sales of specialty coffee and smoothies were growing at a double-digit rate outside McDonald's. Customers were buying food at McDonald's, then going to convenience stores to get bottled energy drinks, sports drinks and tea, as well as sodas by Coke competitors."

The fact that McDonalds wasn't originally remotely considered a competitor of Starbucks makes this a fascinating marketing battle. It's like watching a football wide receiver and his defender both leap for a pass, each having an equal 'right' to catch the ball, neither having especially wanted to collide with the other. But the ball is in only one place, so there they all are- the receiver, defender, and the ball.

In this case, it's the fast food and drink consumer, McDonalds and Starbucks. If McDonalds had identified something else, such as upscale desserts, or pizze, or what have you, somebody else might be in their way. Or perhaps nobody.

But as it is, Starbucks moved so far downscale, and reprogrammed so much of America to drink better coffee, that they created a market too tempting for McDonalds to avoid. And Starbucks developed its business model to be perilously close to that of McDonalds, in terms of satisfying instant consumer demands for food and/or drink, but being less efficient in its provision.

Chance are good you can learn to make better coffee more easily than you can instill a new, faster service ethic in your sprawling employee base. For what its worth, I happened to have sampled McDonalds' upscale coffee salons in New Zealand several years ago, and found it every bit as acceptable as Starbucks or, for that matter, Dunkin' Donuts.

In this passage, the Journal piece provides a wonderful insight into how McDonalds used classic, grass roots market research to unearth the opportunity they are developing,

"McDonald's researchers contacted customers of Starbucks and other coffee purveyors and conducted three-hour interviews where they videotaped the customers talking about their coffee-buying habits. The researchers got in the cars of the customers and drove with them to their favorite coffee place, then took them to McDonald's and had them try the espresso drinks.
"There was a surprise factor," says Patrick Roney, a director of U.S. consumer and business insights at McDonald's. "The people who were on the fence...there was an opportunity to get those." "

And McDonalds is using some of its classic strengths- ubiquity and reasonable prices, to move into the upscale coffee product/market, as seen from this passage,

"Heather Pelis, a 19-year-old babysitter from Rayville, Mo., says she didn't like the McDonald's vanilla latte when she tried it. "It was a little syrupy tasting," Ms. Pelis said recently while drinking a drip coffee at a McDonald's in Liberty, Mo. But she says she'd be willing to try another espresso drink because they are cheaper than the caramel macchiatos she buys at Starbucks, and because McDonald's is more conveniently located. The nearest Starbucks is a 30-minute drive from her, she says.

McDonald's franchisees say they think the new coffee drinks will be particularly helpful in drawing young consumers who prefer them to drip coffee. Gary Granader, a Detroit-area McDonald's franchisee, has started seeing groups of teenagers at some of his restaurants after school since he added espresso drinks a year ago. Mr. Thompson says McDonald's also is considering adding some type of music-downloading service at its locations."

Toward the end of the Journal article, it discusses Starbucks' reaction to its current dilemma,

"Starbucks executives have attributed the slowdown in sales growth and store traffic in the U.S. to the weak economy.

Mr. Schultz has said that new competition actually helps Starbucks by expanding the specialty-coffee category. "Those consumers over time are going to trade up," he told investors in November. "They're going to trade up because they are not going to be satisfied with the commoditized experience or the flavor." He has emphasized that Starbucks's baristas, who are instructed to memorize customers' drink orders and make genuine conversation with patrons, will continue to set the chain apart.

But some Starbucks baristas say that the chain's push into food and drive-through service has made that a lot more difficult. Some workers say their managers instruct them to ask customers whether they want a breakfast sandwich with their coffee -- a selling technique that feels unnatural when they know the customer doesn't want one.

"The more and more business they get in the store, the more it seems like another fast-food job," says Joe Tessone, a Chicago barista who has worked at Starbucks for three years."

To me, having followed this building story for nearly a year, Schultz' and Starbucks' logic and expectations are wrong. They expanded into more price-sensitive, lower-income segments, and are now struggling to make that business more constant. But it will be precisely those customers who are vulnerable to McDonalds and Dunkin' Donuts. Further, the changes in its product strategies is causing confusion and morale problems among Starbucks' workforce.

In today's article on Schultz takeover of the CEO spot, they write,

"Mr. Schultz wouldn't specifically address the coming competition from McDonald's but said he will work to make the experience at Starbucks more distinctive. "We have to be able to restore that in a way that significantly differentiates us from everyone else," he said."

Clearly, this makes sense. It's simple, basic marketing- provide a clearly differentiated offering if you have different price points than your competitors. Doing that, however, after having lost the magic, is a pretty tall, or is that venti or grande, order. However, they also quoted from Schultz' recent internal letter to employees,

"Some of Mr. Schultz's objectives stated in the letter, such as "re-igniting the emotional attachment with customers," are so difficult to measure that it may be hard for investors to know whether they are happening."

Maybe it's me, but I don't really want an emotional attachment to my coffee purveyor, when I do buy coffee from a retailer. I guess that's why I've been a Dunkin' Donuts guy up until now. I only buy whole espresso beans from Starbucks, although my children will sometimes ask to buy a drink when I stop to do that.

Of course, I'm only one coffee drinker, albeit a fussy one. The outcome of this battle royale between two retail food giants, Starbucks and McDonalds, with Dunkin' Donuts also roaming the same terrain, will be fun to watch. If you ever wanted to view a classic marketing struggle between two fairly well-matched firms in a clearly-defined market, this is your chance.