Will Starbucks (Nasdaq: SBUX) addicts balk at shelling out a few extra cents for their fixes? That question may be on some people's minds today as The Wall Street Journal reported that a jolt in the price of java is on the menu at Starbucks. Will this put a damper on the coffeehouses' sales?
The WSJ article said that the price hike is expected to be in the 4% to 5% range, adding about a dime per cup to the bill. The article surmised that the higher price "could push Starbucks' luck" and cited market research from Mintel International Group, indicating that about two-thirds of "regular coffeehouse customers" say gourmet takeout coffee is too pricey.
We've all been well aware of pricey coffee ever since the advent of Starbucks, and it hasn't stopped anybody. When I did a Web search for the Mintel data, I unearthed similar data from 2001, which says to me that actually the public's view of "expensive" coffee hasn't changed. It makes it clear people have been willing to pay the price for good coffee.
Last week, I was on vacation and blissfully unaware of Starbucks' news as I threw back a few lattes in my leisure time, surprised that the suburban Starbucks stores I was hitting were bustling, even though I was going at odd hours on weekdays. Unbeknownst to me, Starbucks' August same-store sales growth wasn't quite what we've all become accustomed to. Investors were selling, inspiring Fool contributor Jeff Hwang to ask whether it's time to sell Starbucks.
The idea of impending price hikes at Starbucks is nothing new. One of the summer's major stories was high cost of dairy. However, if Starbucks is going to venture a price increase now, it doesn't hurt to remember that the coffee purveyor weathered the recession wisely by keeping prices stable; it hasn't passed a price increase on to customers since 2000.
Will higher prices drive customers to cheaper coffee break venues such as McDonald's (NYSE: MCD) or 7-Eleven (NYSE: SE)? It's my guess (and it's been my contention ever since the "Starbucks price hike" rumors began to circulate) that most Starbucks diehards will remain loyal and won't miss the extra pocket change for their daily treat.
I'd also venture to guess that once Labor Day's behind us, things should be just as strong as ever at Starbucks. School will be back in session, and the vacation season will be largely over. It's back to reality, and for many, that reality includes a Starbucks jolt of caffeine.
For more on Starbucks, check out the following articles:
Will you shell out a few extra cents per Starbucks fix? Talk it over with Fools on the Starbucks discussion board.
Alyce Lomax does not own shares of any of the companies mentioned.
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