Starbucks Corp. posted its first ever quarterly loss today. Starbucks recorded a net loss for Q3 of $6.7M or 1 cent per share. Over the last year, shares have plummeted 45% and they recently announced the closure of 600 U.S. stores.

I’ve always been fascinated with the revenue model of Starbucks. Here’s a company that managed to find a way to brew a cup of coffee for about 20 cents (maybe less), and sell it to you for 5 dollars! Those are some juicy margins. From a business standpoint, it’s pure genius!  And best of all, they convinced those too embarrassed to order up a “small” cup anywhere else, to pay a ridiculous amount for a “tall” cup instead.

So what’s happening to the retail coffee industry? Is it on a downward spiral? No one can say with certainty, but all signs do point to trouble. The U.S. is in recession, despite their government’s reluctance to officially declare one. So if your family’s home just got foreclosed and is now struggling to make ends meet, a 6 dollar “Venti” becomes a low priority. In addition to recession, there’s lots of competition and low-cost alternatives like Tim Horton’s here and Dunkin’ Donuts there. There’s also Blenz, 7-11, McDonald’s etc.

But all is not lost in the java war. The domestic market may be saturated (people always joke in Vancouver about how there’s not one, but two Starbucks on every corner), but there’s still plenty of room for growth in emerging markets and that’s where I think Starbucks will prevail. Let’s face it; Starbucks is still a very good company with a very solid brand and business model. I just don’t see them going downhill anytime soon, especially when there are enormous opportunities, albeit outside of the U.S.

The wealth of emerging markets is steadily growing and what better way to spend that new wealth than on a nice, steaming cuppa joe… even if does cost 5 dollars.