According to the news report by Fortune, one of the most popular coffee chains, Starbucks has raised its prices by 10 cents to 20 cents, making it the third price hike in as many years. The price increase has taken place over 8,000 Starbucks stores across the US. The challenge is that these price hikes were done quietly, without the public being informed of it.
According to a company spokesperson, this price increase is not related to the company’s recent decision to close all of its stores on May 29 for an anti-bias training for all employees. This training was carried out after employees called the police on two black men who were waiting in a Philadelphia Starbucks store. The spokesperson stated that normal inflation is what drove the price hikes.
The company issued a statement to Fortune, clarifying that the company constantly assesses pricing on a product-by-product and even market-by-market basis. Doing so, said the company, is what allows the Starbucks to balance profitability with customer needs as well as attract new customers to their stores. The statement continued, explaining that food and beverage prices varied from location to location. The company had increased prices by 1% to 2%, which is completely in line with the industry standard of food away from inflation rates.
However, this is not the first time that Starbucks has quietly raised its prices. In 2016, 48 hours after the US Presidential Election, the coffee chain raised the prices of specific cold beverages, cold drinks and even baked goods by 10 cents to 30 cents. This price increase was subsequent to price increases earlier in the year.
Now, brewed coffee is going to cost more after the latest price increases. The price of a 12 oz. round of “tall” brewed coffee will cost between $1.95 and $2.15, depending on where you are located in the US.
USA Today reported that Starbucks was quick to send out a communique that the majority of the coffee chain’s beverages, such as mochas, lattes, Frappuchinos, cold brews, Nitros, iced coffees, iced teas and tea lattes, still were being sold at the same price as before.
According to the president of Quo Vadis Capital, John Zolidis, this recent price increase is probably going to chase customers away. However, the business that Starbucks will lose from these customers will be more than offset by the price increase. He said that the biggest advantage that Starbucks had was that their products (i.e. coffee and tea) were habit forming, which means that customers will want their daily, weekly or even hourly fix and won’t really notice the price increase.
Starbucks is abuzz with activity right now. The long-time Chief Executive Officer, Howard Schultz, who people say is the driving force behind turning the company into an international giant, announced that he was stepping down from his role and passing the baton of leadership on to Kevin Johnson. He will leave Starbucks on June 26. The rumor is that he is planning to run for President.
Next, the company also announced the newest addition to its permanent menu – the Serious Strawberry Frappuccino.
According to Zolidis, there is a connection between the price increase, the imminent departure the CEO and new menu additions. Especially when it looked at in light of its increased focus on the Chinese market as well as the most recent sale worth $7 billion of the global rights of its packaged coffees and teas to Swiss giant Nestlé.
Zolidis said that all these moves are a clear indication that the American market is becoming saturated and growth is slowing down. This is reflected in the company’s share prices, which are down by 10% YTD.