Starbucks Plays With Pricing

Starbucks (Nasdaq: SBUX  ) is raising prices, but these hikes won't hit everybody where it hurts. They probably won't hurt the outlook for Starbucks shareholders, either.

The coffee giant is increasing its prices by an average of about 1% in the Northeast and the Sunbelt. In New York City, prices for 12-ounce coffees and lattes increased by about a dime. About six other types of beverages will also come at a higher price. The upward adjustment excludes markets in California and Florida, both of which already experienced some price increases in November.

Should Starbucks shareholders fret that this move will infuriate coffee fanatics? After all, pricing has proven to be a major catalyst for consumer outrage here lately. Netflix's summertime rate increase resulted in a significant exodus of customers, and Bank of America and Verizon have recently been forced into retreat after trying to pass on new fees to customers.

On the other hand, Costco (Nasdaq: COST  ) raised membership fees within the last year, and its loyal customers must feel its bargain offerings are worth a slightly higher price of admission to its warehouses. There's been hardly any buzz about it, and membership fee revenue increased by 7.5% last quarter.

The public perception of what's reasonable or understandable corporate behavior probably figures into how consumers will receive Starbucks nickel-and-diming price increases. Consumers are more likely to understand how rising commodity costs affect a company like Starbucks, since they experience those same costs on items such as fuel and dairy in their own budgets. Granted, Starbucks also mentioned "competitive dynamics" in some markets as impetus for the adjustments.

Starbucks has had to tinker with pricing over the years, and its coffee has kept flowing steadily. Its fans buy its beverages to indulge in one of life's small, affordable luxuries, after all. Starbucks investors have little to fret about.

Share your thoughts on the price increase in the comments box below, or add Starbucks to your watchlist to watch brewing developments at the coffee giant.

Alyce Lomax owns shares of Starbucks in her personal portfolio. The Motley Fool owns shares of Bank of America, Costco Wholesale, and Starbucks. Motley Fool newsletter services have recommended buying shares of Costco Wholesale, Netflix, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 04, 2012, at 12:43 PM, mdtopper wrote:

    You guys need a math lesson.

    A dime increase on a cup of coffee that starts at $2.50 represents a 2.9% increase (not 1%). Even if the cup originally costs $5.00 (with double shots or flavored syrup, or whatever other upcharges there are) the dime still represents 2.0%

  • Report this Comment On January 04, 2012, at 12:48 PM, mdtopper wrote:

    But you are right that it may not be perceived as badly as say an increase in one's cable bill, because the consumer may also pay for coffee directly and understand the increase.

    Consumers don't often pay directly for TV content and don't therefore realize how much of an increase the wholesalers impose EVERY YEAR - sometimes as much as 10%.

  • Report this Comment On January 04, 2012, at 1:03 PM, jazzman0401 wrote:

    Seriously, mtopper? Please think before you post.

    "The coffee giant is increasing its prices by an AVERAGE of about 1% in the Northeast and the Sunbelt. In New York City, prices for 12-ounce coffees and lattes increased by about a dime."

    AN AVERAGE of 1%. FOR EXAMPLE, it may be 2.9% in NYC, but there are undoubtedly other areas in "the Northeast and the Sunbelt" that balance that figure out to 1%. That is, after all, what an AVERAGE is.

    Sheesh. Please READ before you decide to get on your high horse and belittle a writer you don't even know.

  • Report this Comment On January 04, 2012, at 1:05 PM, TMFBWItime wrote:

    @jazzman0401

    Thank you for your response. I was just about to respond myself. If I had gold stars to issue, you'd get three.

  • Report this Comment On January 04, 2012, at 1:33 PM, jazzman0401 wrote:

    @TMFBWItime

    Imaginary gold stars accepted, and much appreciated. :)

    I do happen to somewhat agree with mtopper's second point...though I have a feeling that the increase isn't meeting much opposition more because it's literally just pennies. In the instance of Netflix/Qwikster, it was a much bigger jump (60%).

    Would you stop buying your daily latte if it cost 1% more (3.53 instead of 3.50)? My guess is that consumers on the whole would say no. But, go up to 5.60 (60% more) and I think things would change.

    Different angle, just for fun: would Netflix have gotten lambasted with only a 1% increase ($10 up to $10.10)? I think not.

    Maybe not the best analogy ever...but oh well.

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