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Starbucks Looks Weak Next to Competitors

Marek Fuchs

The best way to answer this question? We could start by comparing Starbucks' (SBUX Quote)results with those of two other coffee peddlers who reported earnings: Peet's Coffee & Tea (PEET Quote) and Green Mountain Coffee Roasters (GMCR Quote). Caribou Coffee Company (CBOU Quote), which reports after the close Wednesday, should also be part of this comparison.

Maybe it's because Starbucks seems so singular and because the charismatic and publicity-savvy Schultz could suck attention from the sun, but excluding The Motley Fool and Barron's, I haven't seen many attempts to gauge Starbucks' performance relative to its competitors'. See the Fool's story here and Barron's story here.

These stories don't hold all the answers, but neither do I. Here's what I do know: Peet's and Green Mountain reported decent earnings, as Starbucks was reporting disappointment. But the comparison is not a precise parallel. Green Mountain does a good deal of grocery business, whereas Starbucks' emphasis is on stores. Peet's, which has stores but has expanded into groceries, reported decent earnings but issued lower guidance on sales growth for 2008.

So what does this convoluted mess of facts say about Starbucks? I started the week thinking that Schultz, whom I respect as much as any other CEO in the nation, was lying. OK, not exactly lying, but throwing up some thick smoke to obscure the fact that Starbucks has gotten too big and has too much competition to return to sizeable growth. In other words: Starbucks had become a 2008 version of the Gap (GPS Quote). Once Gap hit a critical mass a decade ago and competitors had caught on to its strategies, it could promise baton twirlers walking the aisles and customers still wouldn't find the store as exciting as they once did. The same, presumably, could be said of Starbucks.

I didn't think this meant either company would eventually wind up prone and wearing a toe tag. But neither did it seem possible for a handful of merchandise tweaks to solve problems, no matter what they said about better service or exciting new products.

And yet, that other coffee businesses could be doing well when Starbucks isn't seems to point toward trouble within Starbucks specifically, I began to think. And I briefly thought that this could lend support to Schultz's claims of ham-fisted operations at the store level.

But then an opposing theory took root: that competition, long absent, now abounds in many forms. Is it simply pushing Starbucks from the head of the stairs toward the basement? Strengthening as Starbucks weakens? Sapping its strength? That seems plausible to me. Additionally, Schultz's secondary excuse -- that Starbucks has suffered from the economy -- seems to lose force in light of comparative strength elsewhere in the coffee industry. For a man like me with three children and long hours, coffee is a top priority. It's not a matter of whether I'll drink it; it's a matter of where I'll drink it.

Anyhow, The Business Press Maven could use some help solving this mystery. Let me know what you think, and I might showcase your analysis in a coming column. You can enlighten the business media on an issue that they are ignoring.