Starbucks Plays With Pricing
Starbucks (NAS: 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 (NAS: 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 pricingover 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.
At the time this article was published 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.
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