Starbucks slips on frozen drink rush

Ashley Milne-Tyte Aug 3, 2006

KAI RYSSDAL: Starbucks tried to get ready for the summer heat. Added some frappuccino flavors. But it didn’t quite work out as intended. Sales fell short of analysts’ expectations. So today shares of Starbucks had their biggest one-day drop in six years. More from Ashley Milne-Tyte.

ASHLEY MILNE-TYTE: The lines for fruity frappucinos have been so long in the morning, some regular coffee drinkers have given up and gone elsewhere. Dennis Milton is a restaurant industry analyst at Standard & Poors.

DENNIS MILTON: Real issue for them, you know, comes when the weather cools down and maybe the demand for the frappucino products diminishes. Are these people gonna come back?

At a Starbucks in Midtown Manhattan today there were five staff manning various machines.

MILNE-TYTE: Hi. Could I have a Tall pomegranate frappucino?

BARISTA: $3.79

It took just under three minutes for that frappucino to arrive. Dennis Milton says Starbucks’ management would far rather that timeframe was closer to a minute. He says managing the speed of service at peak hours is something Starbucks needs to get to grips with as it continues to expand.

So has the company made a mistake in entering smoothie-like territory? Pat Cobe of Restaurant Business Magazine says no.

PATRICIA COBE: I think they had to in order to get the young audience that they’re after. I think they want to start people coming to Starbucks when they’re teenagers, and not every teenager likes coffee right away.

She says they’re facing other problems tougher than faster frappucinos, including stiff competition from Dunkin Donuts and McDonalds. Restaurant industry analyst Dennis Milton agrees Starbucks’ stock slide shouldn’t be blamed solely on sweet drinks.

MILTON: Their forward guidance called for growth, earnings growth anyway, that is not as explosive as people were used to.

But one thing that could help Starbucks is to be better prepared the next time temperatures hit triple digits.

In New York, I’m Ashley Milne-Tyte for Marketplace.

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