Starbucks Corporation’s (NASDAQ:SBUX) biggest threat to global coffee dominance might be an Israeli-based barebones coffee chain intent on bringing ultra cheap java to the masses.
Starbucks already counts some 23,000 locations around the world, and plans on adding another 12,000 over the next five years alone. A new chain, called Cofix, run by wealthy entrepreneur Avi Katz, is tiny by comparison, but that might not be the case for much longer.
Under Katz’s management, Cofix has quickly become Israel’s largest coffee-stand operator, with under 160 branches. And it did so in just three years.
Now, Cofix is turning its attention internationally. With stands already in place in Moscow, the low-price coffee chain is expanding soon to Turkey and the United Kingdom. Other countries will likely follow quickly.
Although both sell essentially the same items — coffee, cappuccino, and baked goods — Cofix’s business model couldn’t be more different from Starbucks. Cofix eschews all the pomp and circumstance of modern coffee houses and instead focuses on a single important variable: price.
At around $1 per cup (or less, depending on the country), its gourmet coffee undercuts competitors like SBUX by 75% or more. The trade-off is that there’s no seating, no waiters, and no room — most of Cofix’s locations look like streetcars parked in busy areas. So while its no-frills approach won’t appeal to everyone, the company has made huge progress in targeting cost-conscious consumers.
According to Bloomberg, “[Traditional] coffeehouses charge six to nine times more for a medium cappuccino than the $0.40 the ingredients cost consumers, according to data from Allegra.” Cofix is willing to settle for much lower margins but much higher volume — like McDonald’s did when it revolutionized the fast food industry.
So the next time you take a sip of that $5 latte, imagine a future where a nearly identical product costs 80% less. It might be coming sooner than you think.
Starbucks shares fell $0.26 (-0.44%) to $59.05 per share in premarket trading Wednesday. Year-to-date, SBUX has fallen -1.2%, badly trailing the +11.72% return of the benchmark S&P 500 index during the same period.