Consumer Choice: Dumping Starbucks and Whole Foods

As people begin to feel pinched, it is interesting to see how the retail economy is affected. Where are consumers cutting back and—equally as interesting—where are they not? Earlier in the month we heard that Starbucks had experienced a 21% drop in earnings. If there is a single suggestion that personal finance advisors give so often that it has become laughably hackneyed it is to stop buying coffee at Startbucks. “Those latte grandes add up.” Well, it would appear that someone has been listening. Many other coffee options are available, and even without going so far as to brew coffee at home, the caffeine addict can easily steer clear of Starbucks and find cheaper beverages nearby. Demand for Starbucks coffee is highly elastic. Similarly, Whole Foods is experiencing a significant slump. When the going gets tough, higher-priced organic foods look like a luxury.

On the other hand, discounters are doing quite well. Walmart and TJMaxx are expected to show very good earnings. All of this points to a shift in consumer choice that provides clear evidence of an economic down-turn.