Coffee: Sometimes Spend Matters (and Sometimes It Does Not)

Like many other workaholics I know of, I've developed an addiction to coffee. Even though I've cut back to a cup or two in the morning -- OK, sometimes three -- there's no way I can start the day without my fix. But the funny thing about coffee is that the most expensive Venti Mocha Double Whip Latte and the cheapest cup of Folgers Crystals essentially accomplish the same thing -- getting a concentrated does of caffeine into the system. Sometimes, it turns out, people are willing to shell out a pretty penny for their daily dose. But in other cases, especially in a tough economic climate, they're not. That's why I found two contrasting stories in the paper from last week so fascinating. One cites my local coffee shop in Chicago as one of the purchasers of a new $11,000 single cup brewer called the "Clover" that lets a coffee shop whip up an especially fancy cup of brewed coffee and charge latte-like -- or higher -- prices for it.

According to The New York Times, the Clover was the brainchild of three Stanford graduates and "lets the user program every feature of the brewing process, including temperature, water dose and extraction time. (It even has an Ethernet connection that can feed a complete record of its configurations to a Web database.) Not only is each cup brewed to order, but the way each cup is brewed can be tailored to a particular bean -- light or dark roast, acidic or sweet, and so on." Hmmm ... sounds like a curious yet convenient way of doubling the price for essentially the same thing as filter coffee. Personally, I'm far more likely to take Starbucks up on their $1 offer if they go nationwide with it. According to the above-linked Wall Street Journal article, "Starbucks Corp., the company that popularized the $4 cup of coffee, is testing a $1 cup of brew and free refills for drip coffee. The Seattle coffee giant is experimenting with selling a so-called 'short' size drip coffee for $1 in the Seattle area ... Starbucks has said that pressures on consumer spending have slowed customer traffic at its stores. The company has raised its prices to offset higher ingredient costs, a move that analysts say has eaten into its sales."

Clearly, comparing the perfect Kona or Jamaican Blue Mountain Clover-brewed cup to the beans that Starbucks is testing out for $1 is not fair. But from a personal Spend Management perspective, it is certainly saying quite a bit when a market leader like Starbucks in a given niche comes to market with a new product that runs completely counter to its traditional premium-pricing strategy when at the same time, higher-end cafes are shelling out thousands of dollars for an entirely new type of machine that they hope discriminating customers will pay a huge premium for. Methinks that over the longer-term, Starbucks only choice for growth will be to serve the lower end of the premium coffee market -- and to keep buying cheaper and cheaper beans to improve its margins. BTW, as a final aside, here's a personal Spend Management tip for all you traveling coffee snobs. To wit, if you're away from your own machine or local coffee shop, think beyond the Big "S". There are, in fact, other options. And one that I favor is Dunkin' Donuts regular brewed coffee which I believe is made from a higher quality bean than Starbucks run of the mill drip variety. Seriously, give it a try.

- Jason Busch

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