Advice to Starbucks: The Hot Barista Contest

I have been an owner of Starbucks stock since 1997. At that time I announced to my broker that I would become not a "technical" but a "cultural" investor. He looked at me bemused and nonplussed, as he usually does when I speak of financial matters, and then I explained. I wouldn't be concerned in the future about the "numbers" of a company--the quarterly returns, the p/e ratio, the statements in glossy brochures about projected rates of growth, etc. I would, instead, invest in stocks whose "time had come" culturally. I pointed out to him, for example, that two kinds of companies interested me: those which sold a product that was very timely for our era and those which sold a product but so wrapped it in a "lifestyle" that people would buy the product because they also wanted a lifestyle. An example of a company doing the former would have been Amazon.com or AOL in 1997. An example of a company doing the latter in 1997 would have been Nike or Starbucks. Nike and Starbucks were concerned, respectively, not just with shoes or coffee but with the "athletic" life or the "coffee/talkee" life. When broker heard my explanation, he politely smiled and agreed to put a few dollars to work where I requested them. Actually, he has saved me more than once from bad decisions; he "humored" me with these. And so I made a few dollars in the late 1990s, before losing it all in 2000 and 2001.

Moving to Starbucks

So, I bought Starbucks in 1997. It was a good decision. Starbucks has experienced steady and terrific growth since then. You can easily check on its fifteen-year growth pattern by looking it up on yahoo.com. Suffice it to say that it is at 31 now while it was at 10 in about 1999 or 2000. Thus, depending on how far back you go, Starbucks has more than tripled in seven years. This is all the more remarkable because the NASDAQ, where Starbucks shares are listed, is now less than 50% of where it was in 2000. So, Starbucks, it appears, has "bucked" the market with remarkable growth.

But my "cultural sense" tells me that Starbucks is in trouble, and this essay is written in order to help my beloved company. To speak biblically, I have neither seen nor heard them, but yet I love them. Well, that is too gushy, isn't it? So, let's get to the point. Starbucks is in trouble for two reasons. My broker would just "give me the numbers" and I could "read" them, but I will give the "cultural" explanation. First, Starbucks is in trouble because it has maxed out on what it can charge people for their product. People will easily part with two, three or even four dollars for a cup of high-charged brew, but not more. Starbucks has reached its limit; it cannot milk, so to speak, its customers for another penny without losing tons of them. Second, and more important, Starbucks is now starting to be mentioned in the conversations of movers and shakers of this world as an example of the type of culprit that makes young people financially irresponsible.

Here is what I mean. All baby boomers who now have children in late teens and twenties (which is millions of us) are concerned about the financial habits of their kids. We know that our kids can get in trouble not so much by flying to New York for the weekend and dumping $8000 at Bergdorf Goodman but by the $18 dinners at PF Changs, the $12 drinks after work and, drum roll, the daily $4 spent at Starbucks. We financially-savvy baby boomers point out to our kids the following, in a conversation not too different from this:

"Beloved Child (right), you have $2,400 per month after taxes are taken out. $900 goes to rent; hundreds to other things. The way you should get out of debt, or not sink into it, is to cut back on Starbucks. After all, $4 per day/5 days a week (and then a bonus on the weekends) adds up to more than $100 a month, easily. If you cut back to twice a week, you could easily save hundreds and hundreds of dollars a year."

Friends, this is the type of conversation that is happening in hundreds of thousands of households around the country. And, it is having its effect. In the last two years the NASDAQ has risen at least 20 percent and Starbucks has flat-lined. That is not to say that Starbucks hasn't had its "ups and downs." It reached 40 last year, but it has plunged back to the low 30s and seems destined to stay there. The promise of more stores, which formerly fueled the stock price, is no longer doing that. And, when you combine with it the kind of conversation that takes place between parent and child, you have the makings of corporate disaster.

What to Do?

In a situation like this, Starbucks needs some help. It can continue to print brochures telling you how they support Sumatran coffee farmers, etc., and that is good. It helps the "image." But it has to do something much more. I suggest the following, after sitting in Starbucks for a while and looking at the clientele and staff. Many of the people who come in for coffee are guys, mostly young and middle-aged, with enough money to buy far more than a cup of coffee. Many of the staff of Starbucks are young and very attractive women, who are taught to be superfriendly and efficient. Guys not only like to look at very attractive women, but they like to muse about attractive women while they are nursing their favorite brew in one of Starbucks' comfy chairs. The staff doesn't have to have "Hooters" characteristics, but they can't be candidates for stomach-staple surgery. Many Starbucks baristas have been asked out for dates by their customers. Indeed, some customers have been known to describe the ways that they would take the "dullness" out of the barista's life. Let's build on this natural guy tendency to want to be around pretty women.

The idea is a series of contests for the "hottest barista" of each participating Starbucks location. However, the catch is that each person who wants to 'vote' on his favorite barista has to buy something--either another cup of coffee or a gift mug or something like that. The number of votes is unlimited, so a particularly wealthy (or desperate, for that matter) man might sink thousands of dollars into his favorite barista. The contest would go on for a month or two. Starbucks knows how to "hype" things, so each day they could run headlines about the contest, maybe picturing some of the really cute baristas as ones that the guys might want to fight (or trip) over. I haven't yet figured out what the "winner" of the contest would get or what the guy who invested the most dough in the contest would get. I know, however, that it wouldn't be a date with the woman. This isn't "Blind Date" you know. But something would have to be offered to the guys who put in all their money; perhaps a "one on one chat" with their favorite barista while she served them a really tasty frappuccino...

Conclusion

In a few months of these contests ought to reverse Starbucks' flagging fortunes. It would renew investor confidence; spark customer goodwill; increase same-store sales, lead to invitations from Playboy and other great magazines to have the winners "pose;" lead to calendar-makers making "The Girls of Starbucks" calendars. America would be renewed. We would be so riveted on Starbucks baristas that we would withdraw from Iraq. Prosperity would return for all. International peace would reign. Even Christ might return. All because of this little idea.

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