Can Starbucks Really Offer 'Value' With a Straight Face?

For over a decade, Starbucks wasn't just about good coffee: it was about luxury -- a self-indulgent treat -- which for many became a regular part of their daily routine. The Starbucks experience, with its granite counters and wood-paneled stores redolent of fresh brewed java, drew devotees happy to fork over $5 for a hand-pulled cup of the good stuff.

Once the company added free Wi-fi, Starbucks became a destination not only for commuters but for work-at-home entrepreneurial types. An office away from the home office, Starbucks was the perfect place to meet clients, network, and yes, linger over a latte. Sure, the prices were steep but what did that matter when, after talking shop with fellow java junkies, one could claim the expense as a tax deduction?

Then the economy began to shrink and suddenly people started paying attention to their daily expenses, including the latte factor: unnecessary costs which, if eliminated, could turn into thousands of dollars saved per year. In New York City, for example, buying a triple grande caramel macchiato four days a week amounts to $883.20 per year. My own former Starbucks habit of buying a venti latte at $3.60 five days a week amounts to $936.00 annually, enough to pay for the new kitchen floor I'd been unsuccessfully trying to save up for.

As the price of gas spiked last year and job losses mounted, more and more people began calculating their own latte factor and realized it was just too damn much to pay for a coffee drink. McDonald's quickly capitalized on this realization. For all the mommies in minivans brimming with kids hopped up on Happy Meals, the daily Starbucks indulgence was an ill-affordable luxury. But what if McDonald's offered them a similar treat -- a cappuccino or latte -- far below Starbucks prices? It was a perfectly timed move, and McDonald's same-store sales jumped. Seeing an opportunity to cash in, Dunkin' Donuts quickly followed suit and its profits also rose.

As the economy worsened, cups emblazoned with the green mermaid became a badge of shame. Who in their right mind would shell out $5 for coffee in a recession like this when, just around the corner, they could get caffeinated for a fraction of the price? Like junkies looking to maintain their habit, coffee consumers flocked to more affordable suppliers, and Starbucks felt the pinch.