Your Starbucks Fix Is About to Cost More

Your Starbucks Fix Is About to Cost More
Your Starbucks Fix Is About to Cost More

By Jeff Reeves, Editor of

If your New Year's resolution was to pinch a few more pennies, Starbucks (SBUX) has some bad news for you. The coffee king is raising prices thanks to rising costs of coffee and milk, passing its expenses on to java junkies.

More disturbing, however, isn't the price hike at Starbucks - but the unfortunate reality that nearly all of your favorite restaurants will be charging you more in 2012 than they did last year.

Here are the specifics on Starbucks: The company is raising prices about 1%, on average, in some of its most popular markets in the Northeast and Southwest. Cities such as New York, Dallas, Atlanta and others are the big targets. As one example, a 12-ounce cup of coffee will go up in cost by 10 cents, a Starbucks spokesman said.

This price hike at Starbucks comes after a rash of other increases. Some drinks in California and South Florida became pricier in November, so those regions were excluded from this recent increase. That's after Starbucks raised prices in 2010, then again in early 2011.

We all are paying more these days for essentials like milk and transportation and electricity, so the motivation isn't exactly a mystery. The U.S. inflation rate is tracking a roughly 3.4% annual rate based on recent data.

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But that doesn't make the coffee price change any easier to swallow - especially considering Starbucks has seen its year-over-year revenues increase for eight consecutive quarters, and has seen 10 straight quarters of profit increases. It's not exactly like SBUX is going bankrupt because of coffee costs.

What's more, other restaurants have been passing on their cost burden to consumers in an effort to prop up their bottom line. McDonald's (MCD) is in many ways a top competitor of Starbucks with its McCafe line, and McDonald's raised menu prices on a host of items in 2011. Burrito broker Chipotle (CMG) is in the same boat, in June announcing a price hike as food costs jumped from 32% to 35% of its overall business expenditures.

If you think you can stop eating out to avoid this trend, think again. Inflation is eating away at family food budgets, from items like peanut butter and ground beef to soy and Coca-Cola (KO) soft drinks. Heck, even Thanksgiving was a price shock - with the cost of a traditional turkey dinner up 13%, or $6 per household.

So if your New Year's resolution was to save a few more bucks this year by cutting costs, the reality is you probably will have to pair that with another goal: going on a diet.

Jeff Reeves is the editor of Write him at, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.

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