No Shortage of Starbucks Rivals

Starbucks is under assault not only by a foray from McDonald's into high-end coffee drinks but also from smaller rivals like Peet's and from the trend of people brewing more coffee at home, according to a note issued Monday by Stifel Nicolaus analyst Steve West.

West said Starbucks could be a loser in what he called the "coffee wars" of 2009 while Peet's, McDonald's, and Dunkin' Donuts could be the winners.

The brew-at-home trend could help both Peet's and Dunkin', which do big business in beans and which have seen their grocery sales growing lately.

By itself, of course, Peet's doesn't present much of a threat to Starbucks. Besides its grocery business, the Northern California-based roaster operates a couple of hundred stores, compared to about 15,000 Starbucks outlets worldwide. In its fourth quarter, Peet's reported revenues of $79 million, while Starbucks took in about $2.52 billion.

But Peet's is just one of the endless alternatives to Starbucks that coffee drinkers have at their disposal, from (as I recently noted) the decent cup that can be procured at a Chevron station to the vastly superior coffee that can be had at Peets, Caribou, or any number of independent coffee shops.

Peet's coffee is a lot better than Starbucks, which is one reason that, while Starbucks' earnings fell by 97 percent in its fourth quarter, Peet's profits rose by 21 percent.

So while West is right that Starbucks' main problem is people seeking to save money on their coffee purchases, its other problem is that people who are still willing to spend have plenty of options.