Starbucks and Macroeconomic activity

Over at 100 word blog, Richard notices an interesting phenomenon – namely that areas with more Starbucks are being more heavily hit by the credit crisis.  Now this isn’t good for NZ – as we have over 40!

Looking at this only provides us a correlation – not causation, as the Starbucks are not causing the credit crisis.  However, there may be a factor related to the number of Starbucks which is infact a causal factor for the intensity of the credit crisis.

Mentioned on 100 word blog is:

  1. It is an indication of “risk-taking industries” who use Starbucks (the “wanker” effect),
  2. It illustrates a greater national preference for current consumption ahead of future consumption (investment),
  3. It indicates more highly integrated capital markets.

I agree with all three – but especially the second one.  What do you guys think?

  • itneresting, although to be honest I don’t know many investemnt bankers who get coffee from starbucks so I think I disagree with (1). I think (1) is more an indication that we have a lot of people who don’t know what decent coffee tastes like:)

    (2) and (3) seam reasonable.

    Doesn’t (3) assume that most starbucks are not owned by local franchisers? i.e. there are lots of starbucks beucase starbucks is investing alot here rather than locals investing and simply using the starbucks name. That is probably the case in NZ, but who knows? anyone have any insider knowledge on the ownership model for starbucks stores?

  • I’m with Agnitio here, the whole thing depends on the ownership model.

    I can’t put my finger exactly on the economic principle (or use the language) but my intuitive grasp of things is that franchise business models often depend on individuals borrowing large sums of money at high rates of interest to buy into franchises. Many franchisees can pay the interest but struggle to pay off the capital part of thier loans.

    There may be a similar effect with Westfield shopping malls. In Australia, at least, they are associated with high rates of bankruptcy.

  • “although to be honest I don’t know many investemnt bankers who get coffee from starbucks so I think I disagree with (1)”

    Agreed 😛

    “Doesn’t (3) assume that most starbucks are not owned by local franchisers?”

    Good point.

    “Many franchisees can pay the interest but struggle to pay off the capital part of thier loans.”

    Interesting. The reason franchises might be especially vulnerable may stem from the relatively low cost of entry (the brand is established, the design is established, the input source is established) thereby reducing the franchise owners bargaining power when setting up (inability to change price, strong competition from other “potential” owners) – as a result, the full cost of a pullback in demand will fall on the franchise owner.