Starbucks' Nickels and Dimes

It's that time again -- Starbucks (Nasdaq: SBUX  ) will raise prices on its coffee. It's been two years since the java joint last raised the prices on its drinks, and what a difference a couple of years make.

Remember back in 2004, when Starbucks raised its drink prices by 11? ($0.11, that is.) When that move first hit the wires, there was some degree of concern from the Wall Street types that the extra pocket change might cause customers to balk, but as we all know, that just didn't come to pass. In contrast, Starbucks' recent price-hike news has analysts this time around expressing renewed "confidence" in the coffee purveyor.

Fast-forward to the present, and Starbucks plans to raise the price of its prepared drinks by a nickel a pop, and increase the price of its beans by $0.50 a pound. It hasn't raised drink prices in two years, and it's been a formidable nine years since it increased what folks pay for its beans.

Some people were concerned about Starbucks when it last reported its quarterly numbers. Concerns ranged from slowing sales (Starbucks blamed a lighter same-store sales increase in July on voracious appetites for frozen drinks during busy morning rush hours) to increased competition from the likes of McDonald's (NYSE: MCD  ) and Dunkin' Donuts. Meanwhile, plenty of other coffee purveyors compete with different aspects of Starbucks -- think Green Mountain Coffee Roasters (Nasdaq: GMCR  ) , Peet's (Nasdaq: PEET  ) , and Caribou (Nasdaq: CBOU  ) .

Then, of course, there was Starbucks' Internet coupon blunder and the ensuing lawsuit. (Hopefully, no customers will feel "betrayed" by paying a few cents extra for their coffee.)

Analyst buzz simply seems to imply that Starbucks is feeling pretty confident about its customers' loyalty, given that the company feels it can raise its prices right now. It cited increasing costs such as energy and health-care expenses. And of course, the more it charges, the more its sales and hence profitability will increase (assuming demand remains constant or falls less than the increase).

Despite the factors that have made some investors think twice about Starbucks lately, I agree that a price hike is no big deal when it comes to luring its loyal customers into its stores. A nickel here and a few quarters there shouldn't be any big deal, and it certainly shouldn't make any difference when it comes to Starbucks drinks' status as an "affordable luxury."

For more caffeinated Foolishness:

Starbucks is aMotley Fool Stock Advisorrecommendation. To find out what other companies David and Tom Gardner have recommended to investors, click here for a 30-day free trial.

Fool contributor Alyce Lomax owns shares of Starbucks. The Fool's disclosure policy is just the thing with a venti latte.


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