CHICAGO (AdAge.com) -- Americans appear to be cutting back on their Starbucks.
After reporters in several different cities noticed much shorter lines at their coffee outlets, Ad Age decided to commission Lightspeed Research to find out whether either New Year's resolutions or a tough economy were turning latte sippers into bean counters.
The survey results reveal that 60% of Americans have scaled back on fancy or expensive coffee in the past six months; 56% report cutting back just since the beginning of the year. The culprit was overwhelmingly the economy, with 90% of survey respondents saying they are doing so to save money. Upmarket coffee "just cost too damned much," said one respondent. "I don't drink as much Starbucks as I did before," said another.
Those who have scaled back the most since the beginning of the year, according to the online survey of 500 Americans conducted between Jan. 14 and 15, are consumers 45 to 54, with fully half (50.4%) saying they have "cut back a lot" on fancy or expensive takeout coffee. That was followed by consumers 35 to 44 (37.5%) and 25 to 34 (33.3%). As might be expected, those who had trimmed the expense the most were in the lower of the survey's income brackets (48.6% earned between $20,000 and $39,000, and 33.6% earned below $20,000; the latter presumably included college students, who are a sweet spot for Starbucks).
But salary didn't appear to be that big a factor among the 92% who said they are cutting back on back on expensive coffee to save money: The percentage was close to even across all income levels, including $75,000-plus.
And these are clearly Starbucks drinkers: Some 43% said they "buy their coffee the most" from Starbucks, followed by "other" at 20%, Dunkin' Donuts at 19.7%, McDonald's at 16% and Burger King at 1.3%.
The biggest shift seems to be in mind-set, as latte lovers trade down rather than out of their fancy-coffee fixes by drinking less, going to less-expensive places or brewing at home. "I started buying my coffee at less-expensive places," said one respondent. "I have it once a week to indulge myself," said another. "I went from once a week to once a month," said a third. "I drink lots of home-brewed coffee, whereas before I would only drink a venti Starbucks," said a fourth.
This trading down seems to be affecting the coffee giants unevenly. While Starbucks has reported same-store sales down in the mid-single digits, Dunkin' Donuts has opened more stores, expanding the once-regional chain in Las Vegas, Phoenix and Dallas.
"We know that our customers are faced with a challenging economy, and we want to help them survive during these times," said Deb Trevino, director-corporate communications at Starbucks, highlighting its new rewards program and gold card, which offer a variety of discounts. Starbucks has also fought back with marketing and advertising, airing a number of TV commercials -- a tactic once anathema to the brand.
Dunkin' has seized on Starbucks' relative weakness, with the "Dunkin' Beat Starbucks" taste-test campaign last fall, as well as a variety of aggressive discounts. "There's definitely some trade down going on; how much of that is happening a guess at this point," Dunkin' Chief Brand Officer Frances Allen said. "But we know it's happening at McDonald's, so we can only imagine it's happening for us as well."
Harry Balzer, chief industry analyst at NPD Group, said sales of specialty coffee -- lattes, cappuccinos and the like -- were up 4% in 2008 but down 1% in the fourth quarter, when the economy really started to tank. That represents specialty coffee's first quarterly decline since 2004. And a serious cutback could change the dynamic of a market where specialty coffee accounts for more than half (2.9 billion servings) of total coffee consumption (4.6 billion servings), according to NPD Group/Crest.
In the meantime, prospects for low-rung coffee might be picking up. Sensing opportunity, Quick Chek, a Whitehouse Station, N.J.-based chain of convenience stores, recently launched an outdoor and radio campaign telling consumers to "Cut spending. Keep drinking."
"I think there is some trickle down," said Mandy Steindl-Kwiecien, the chain's category manager for drinks. "I think as some people trade down from Starbucks to Dunkin', we'll hopefully get some people trading down from Dunkin'." While Quick Chek's coffee sales were up in 2008 because of price increases, the chain's sales were down by volume.
Ms. Steindl-Kwiecien said the company is bracing for the arrival of a major competitor: McDonald's, which is in the process of installing coffee bars in about 14,000 U.S. restaurants, a move virtually guaranteed to reshape the market once more. It will begin national advertising for the McCafe line early this summer.
She predicted that Dunkin,' Starbucks and Quick Chek all will lose business when that happens. "Their price isn't significantly lower, but they position themselves as a value offering," she said. "People, whether they're feeling the pinch or not, are thinking differently about their money."