It has become a personal finance writing trope to show people how much money they might save if they cut out their morning latte. On the surface, it's easy to see why that $5-7 daily expenditure seems like a luxury that could easily be cut. And, if you literally can't afford it, perhaps it could be.
For most people, however, a regular stop at Starbucks (SBUX) represents a reasonable indulgence, an affordable way to treat themselves at a time where they might be putting off vacations, major purchases, and eating out. Tough economic times lead people to be careful, but the reality is that you can buy roughly 20 caramel macchiatos for the price of a $120 fancy dinner or 200 for a modest $1,200 vacation.
Or, put another way, $1,200 can buy you a little bit of happiness on every workday. That seems a lot less indulgent than spending a three-day weekend in a nice hotel that you can drive to or most of the other ways you could choose to spend that money on something that's not absolutely required.
Starbucks is essentially recession proof because the company sells an affordable indulgence. That's something that interim CEO Howard Schultz commented on during the chain's first-quarter earnings call.
Junko Kimura/Getty Images
Starbucks' Business Has Gotten Stronger
Starbucks had record quarterly sales of $8.7 billion and saw its U.S. comparable-store sales grow by 10% while its global comp sales were up by 5%. That seems somewhat incongruous with the recent concerns over inflation, layoffs, and general fears about the economy.
Schultz also made it clear that the coffee chain is not feeling any pinch from economic conditions.
"At a time when people are generally trading down, and there's a lot of discounting going on, we had the highest average ticket, I believe, in our history in the month of December," he said.
The outgoing interim CEO, who will remain a member of the company's board, believes that the company remains in a very strong position.
"And so we don't see ourselves in a situation where we need to discount heavily, and we don't see a situation where our customers are trading down. And I think the strategic advantage we have, which we talked about in the last call, is customization and how our customers are creating their own proprietary beverage and that adds to the ticket and obviously adds to the value perception that customers believe they're getting at Starbucks," he added.
Starbucks Has Momentum in the U.S.
"The record demand for Starbucks Coffee in North America we reported on our Q4 call accelerated in Q1 and through holiday. Despite the difficult operating environment that most retailers, particularly brick-and-mortar retailers experienced in the quarter. Average weekly sales in the U.S. company-operated stores reached a record high in Q1, exceeding the prior record set in Q4 of fiscal '22," Schultz said.
Basically, Starbucks has not been impacted in its home market by any actually negative economic conditions or the perception that the economy may hit a rougher patch. The chain has also continued to add loyalty program members, which it can market to through its app and via email should it need to drive more traffic to its stores.
"Active Starbucks Rewards membership in the U.S. exiting Q1 totaled over 30 million members, up 4 million members or 15% over last year and up 6% sequentially," Schultz said. "Loyal Starbucks Reward members drove a record 56% of tender, up 3% from last year, reflecting increased customer engagement throughout our system."
Starbucks has also continued to invest in what the outgoing CEO called its "convenience channels."
He noted that "Mobile Order & Pay, drive-through, and delivery continue to fuel our business, delivering 72% of U.S. revenue in Q1," and made it clear the chain would keep investing in that area.
"We continue to add high returning drive-throughs that attract new customers, expand our footprint and drive new customer occasions," he added.
