See these happy people dangling their legs in the picture above? You are looking at a group of Japanese people enjoying their favorite Starbucks beverage while overlooking one of the busiest intersections in Tokyo (Shibuya).
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Howard Schultz wishes his domestic market - all of his markets for that matter - were as robust as the one in Japan. Since opening its first outlet in Japan a decade ago, Japanese Starbucks locations have easily become the most profitable for the company in the world. Why? Three reasons: The Japanese, despite being far better known for tea drinking (especially green tea), have had a long passion for coffee. Secondly, Japanese apartments are quite small by Western standards, and meeting friends, family and co-workers is more convenient at an agreeable, neutral location. Last but not least, young people (by Japanese standards - anyone under 25) flock to Starbucks as a mode of expression in an environment outside their traditional culture. In fact, it is quite common to witness an occasional female customer dressed in a kimono - and talking on a cell phone. That is history and modernity at its best.
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While most economists regard the GDP, the unemployment rate, the consumer confidence index and several other quantitative variables as the best overall data to measure the condition of the economy, what about using Starbucks as an indicator? It is not so far-fetched. For many years, The Economist magazine has gauged currency values with the 'Big Mac Index' on its back pages. The price of a Big Mac is compared from Beijing to Boston. Why not? Since Americans have traditionally used General Motors as an economic barometer in the past, why not make Starbucks a leading indicator? Unlike GM, the Seattle juggernaut is represented in nearly every corner of the earth. Furthermore, the decision of coffee drinkers to buy or forgo a nearly $4 latte is instantly transparent and can be scrutinized as a microcosm of the larger economic picture. Consider the following interrelated economic factors with regard to Starbucks over the last few months:
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1) As the price of oil spikes, customers begin to recalculate their spending habits. As a quasi-luxury item, a daily run to Starbucks is converted to a once or twice a week phenomenon at most
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2) Consequentially, sales begin to sag and the Starbucks stock price goes down faster than a cold Mint Mocha Chip Frappuccino on a hot day due to bleak forecasts on oil futures
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3) Skyrocketing diesel fuel prices increase the overhead for every store - deliveries of coffee, scones, cups, napkins and especially milk (now very expensive) lowers the profit margin drastically
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4) New products and less expensive variations of coffee are introduced to lure the consumer back into his or her old Starbucks habits. Instead of a Grande Latte for $3.50, why not order a Grande Cafe Misto (a cafe au lait - no espresso) for $2.50 and save a dollar?
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5) Finally, a restructuring plan is announced to cut company costs. 616 stores in the US are earmarked for closure, 61 of 84 shops in Australia are slated for extinction (announced yesterday) and 1,000 Starbucks corporate jobs are now on the block (see NYT today)
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Starbucks is a near perfect economic indicator for 21st century economies. It is 'flat' (global) and reflects a plethora of financial variables. By taking the layoffs, the stock price, the overhead costs and the restructuring decisions of Starbucks into account alone, one can gauge the relative strengths and weaknesses of the economy.
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Although the picture is certainly not bright for Starbucks at the moment, its seeming determination to convert itself from a 'Venti' sized corporation to a 'Grande' sized company - in touch with both current economic trends and the consumer - is promising. If the US government and all American businesses follow suit with similar makeovers to cut energy use and thus transportation costs, the US and world economic outlook will turnaround sooner rather than later.
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Hence, the Starbucks Indicator will used on KleosToday as one factor to assess the health of the domestic and global economy. Why not use the second most traded commodity in the world (coffee) to chart the impact of the most traded commodity (oil) and other financial phenomena on our material lives?
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J Roquen