Starbucks Hikes Prices, Customers Take a Hike?

In the midst of a nasty recession, will customers want to pay more for their daily cuppa joe? Starbucks (Nasdaq: SBUX  ) may soon find out.

In some markets, the java giant is adjusting prices on what it calls "more complex" beverages. Some venti-sized fancy drinks will cost as much as a quarter more than they used to, but other drinks will decline in price by an average of $0.05 to $0.15.

Starbucks heralded these price changes back in April, and it's hardly clueless about the possible impact. In a memo to baristas, the company warned that its employees should "expect customers to be sensitive to pricing changes in this economic climate." In response, the chain apparently encourages baristas tell customers that the coffee giant is looking for ways to provide value. I'm not sure customers who are paying a quarter more will buy that line of thinking, but those paying a bit less just might.

Hiking prices could make sense if Starbucks wants to reestablish its credibility as a premium coffee purveyor. I could hardly complain about that, given my previous concerns that some of the company's "value" initiatives might tarnish its brand. Still, miffed customers could turn to many alternatives, including Peet's (Nasdaq: PEET  ) , Caribou, and Green Mountain Coffee Roasters (Nasdaq: GMCR  ) . And nobody underestimates the power of lower-end competition like McDonald's (NYSE: MCD  ) or Dunkin' Donuts, either.

Nor should we forget Starbucks' diminished traffic. Companies like Chipotle (NYSE: CMG  ) (NYSE: CMG-B  ) and Panera Bread (Nasdaq: PNRA  ) have successfully raised menu prices to offset flagging customer visits, but that's a dangerous game to play. Given its current precarious position, I have to wonder whether Starbucks should have left well enough alone.

Will taller prices for venti drinks faze customers or not? Let us know in the comment boxes below.

Chipotle Mexican Grill is a Motley Fool Hidden Gems selection. Starbucks is both a Stock Advisor and a Inside Value pick. Chipotle Mexican Grill and Green Mountain Coffee Roasters are both Rule Breakers selections. The Fool owns shares of Starbucks and Chipotle. Try any of our Foolish newsletters free for 30 days.

Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (9)

Comments from our Foolish Readers

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  • Report this Comment On August 24, 2009, at 4:29 PM, Jonesicus wrote:

    I hiked away from Starbucks a long time ago. Personally, I've preferred Dunkin' Donuts' brews even before the price hikes. That said, there's even less of an incentive now for me to hike up to Starbucks and ask for a "large" coffee (against protocol). Revenue may go in the opposite direction of the price hikes, and if it does, board members and officers might want to do some serious reflecting on their life choices. A good activity to facilitate such reflection might include hiking the Appalachian Trail or taking a hike to Machu Picchu. If not, then they'd better get ready to roll up their sleeves and hike up their socks because it's going to take some dynamic management techniques to keep EBITDA above water if Starbucks' loyal customers do take a hike.

  • Report this Comment On August 24, 2009, at 4:43 PM, cswalker21 wrote:

    I'll still go.

  • Report this Comment On August 24, 2009, at 5:02 PM, TMFLomax wrote:

    Jonesicus, that was some good hiking imagery with your good point. (The Appalachian Trail or Machu Picchu... nice.)

  • Report this Comment On August 24, 2009, at 5:39 PM, chitownfool68 wrote:

    The first day I read about this, I email Starbucks and told them as a consumer of their products, I'm officially out of the Frap purchasing business! If prices go up on the Mocha, I'll have to leave Starbucks forever.

    Shame too, I love all my local Baristas. It's a daily trek for me.... so sad....

  • Report this Comment On August 24, 2009, at 6:30 PM, myst94gt wrote:

    As a store mgr of a medium to high volume drive thru store i can assure you the disruption has been minimal. I originally expected a couple of bricks to be thrown at me, at the least some rude comments...nay. In my experience 97% of my 5,500 person a week customer base didnt blink at it, 1% said "whats going on here", 2% made a bitter beer face then ponied up the cash. Anecdotal i know but from the front line i havent heard alot of noise. I believe we have all made it more than it is.

  • Report this Comment On August 25, 2009, at 1:33 AM, knblizzard wrote:

    I think it is funny. I love McD's McCafe. It is cheaper, better tasting... raise the prices I have already switched anyways lol.

  • Report this Comment On August 25, 2009, at 9:59 PM, peteralt2 wrote:

    good quality always cost more. If you want cheap sweet sugar syrup drinks...go to Mcdonalds or Dunkin and save 50cents...enjoy your sugar water

  • Report this Comment On August 26, 2009, at 10:24 AM, dkafafian wrote:

    I happen to be a fan of Starbucks, but the problem is that they are the very symbol of discretionary spending. Nobody NEEDS a Starbucks coffee, so when the wallet (or even the perception) gets tight, the $4.00 latte is the first thing on the chopping block. I doubt we will see $40 per share SBUX for a very long time... at least not until people feel more settled in their finances.

  • Report this Comment On August 27, 2009, at 9:33 AM, pncnet wrote:

    Once again negative press without looking at the whole picture. Drink prices on some drinks, mainly the ones that most people probably order, went down. Why shouldn't a company adjust prices for what goes in the drink. My drink pricing went down so I like this change. Tell the WHOLE story!

  • Report this Comment On August 27, 2009, at 10:59 PM, Fool wrote:

    The prices of the drinks at Starbucks are not any higher than any small coffee shop I have gone to. I always thought I wanted to support the small shop. However, the quality was not always good. Then after doing the math, I realized going to the starbucks in my neighborhood supports alot of local neighbors. The Starbucks employs 20 people. They all have health insurance. They all spend money in the neighborhood. They are my neighbors. The small shop has 5 employees. They dont have insurance. They are high school students who don't really know much about coffee. They don't seem to love coffee like the Starbucks employees do.

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