Starbucks, the global coffee chain, was built by a generation of coffee drinkers who regularly rewarded themselves with a small daily luxury.
But in a sharp economic downturn, fewer people are in the mood to indulge. On Monday, the chain reported net income dropped 97 percent, capping a turbulent year in which the company tried to get ahead of the economic slowdown by closing stores and laying off employees.
It may be painful for Starbucks investors to remember, but the company, based in Seattle, was once associated with predictable growth and cultural relevance. During the last two decades, Starbucks, and the other premium coffee chains that emulate it, seemed to peddle a product that was central to an affluent urban and suburban way of life.
But many people are now abandoning the product, if not the lifestyle that goes with it. Over the three months that ended Sept. 28, 4 percent fewer people visited Starbucks stores, and on average, the ones that did spent 3 percent less on items like mocha cappuccinos and chocolate croissants than customers in the same period a year ago.
One of Starbucks’ new rivals, McDonald’s, which started offering specialty coffee drinks this year, also reported earnings on Monday. The juxtaposition was stark. Global same-store sales at McDonald’s rose 8.2 percent in October alone, suggesting that at least some consumers are obsessing over their pennies and turning to less expensive options.
“This happens in every recession,” said Erik Hurst, a professor of economics at the University of Chicago. “When times are uncertain and there’s a chance that you might be the one losing your job, you would much rather keep some discretionary funds around in the form of savings than spend them on luxuries” like expensive coffee drinks.
Starbucks reported flat revenue and a 98 percent decline in profit over the fourth quarter of 2007, which were dragged down in part by charges related to its turnaround plan that includes the termination of 1,000 employees.
Starbucks reported a modest profit of $5.4 million, or a penny a share, compared with $158.5 million or 21 cents a share, in the period a year ago. Revenue rose 3 percent, to $2.5 billion, up slightly from $2.4 billion a year ago. The company’s operating expenses rose because of higher payroll, higher rents and inventory write-downs, while operating profit margins shrank to 0.6 percent, from 10.2 percent in the year-ago period. It blamed weak traffic in its American stores, the source of 88 percent of its revenue.
Mr. Schultz said that the worst might already be behind Starbucks. He said that the decline in sales remained constant over the first few weeks, while other retailers of premium products continued to see sales plummet.
Starbucks offered a range of predictions for 2009 that included three different possibilities for what it might earn in the year ahead, related to the deterioration of consumer spending.
For its entire 2008 fiscal year, Starbucks announced that net income fell to $315.5 million for the year, from $672.6 million during 2007 on revenue of $10.38 billion.
Starbucks is now slowing the proliferation of its stores, which made it ubiquitous in American cities, but also a source of comedy to many. The company plans to end the 2009 fiscal year with 225 fewer company-owned stores than at the beginning of the year.
Internationally, Starbucks is planning to open about 700 new stores in the fiscal year ahead, but two-thirds of those will be licensed cafes that are run by other companies, like supermarkets and bookstores.
