Recovery is here: bring on the lattes

Profits are up at Starbucks as sales of pricey coffees rebound

Recovery is here: bring on the lattesWhen looking for clues about a recovery, economists generally pore over data on factory orders, housing starts, and even something called the Baltic Dry Index, which measures shipping volumes of coal and iron ore, among other things. But maybe they should also be looking in the bottom of their coffee cups.

Java giant Starbucks recently surprised analysts with encouraging quarterly financial results, including better-than-expected profits and sales growth at many of its stores. It’s an about-face from most of last year, when recession-weary consumers took a pass on the company’s pricy caramel macchiatos, opting instead for cheaper fare from the likes of Tim Hortons and Dunkin’ Donuts. “I think there certainly has been a turn in the economy and the restaurant industry is starting to see it,” says Doug Fisher, president of FHG International Inc., a food service and franchise consulting firm based in Toronto. He called Starbucks a “cheap luxury” for many people. “Maybe I’m not ready to go out for a Ruth’s Chris steak, but a more expensive coffee I can fit into the budget.”

Starbucks is also benefiting from a turnaround plan that saw it slash thousands of jobs and begin to rebrand itself as the friendly corner coffee shop. (The company had suffered, says CEO Howard Shultz, from overexpansion and the “commoditization” of the brand.

But the end of the recession may not be good news for everyone in the food industry. McDonald’s said U.S. sales grew by only one tenth of a per cent in the most recent quarter—its weakest performance in at least three years. It remains to be seen whether the company’s new line of up-market espresso drinks can help to close the gap as consumers start to feel a little richer again. A latte with your Big Mac?