Can Starbucks Get Away With a Price Hike?
A small, yet symbolic, pricing increase is taking place at Starbucks today.
The premium coffeehouse is rolling out small hikes in select markets. The uptick in java doesn't amount to much. The average increase is a mere 1%, and outside of a $0.10 bump in prices for tall coffees, it's not as if most people will notice that they are paying slightly more for their caffeinated fixes. Our cable bills creep up every year, so why should a cup of Joe be any different?
The rub is that coffee commodity prices have actually gone the other way. Starbucks even pushed through a 10% decrease on its packaged retail coffee products last month! A Starbucks spokeswoman is confirming to Nation's Restaurant News that the small increase is being pushed through today.
Lower coffee costs? Higher consumer-facing prices at Starbucks stores? Shareholders will love this if it's successful. Margins will spike nicely.
Starbucks may be hoping that an influx of new products -- including a new Valencia Orange Refresher, a Shaken Iced Peach Green Tea Lemonade, and Kati Kati blend of East African coffees -- that are being added this morning will blur the increase. Folks will be too dazzled by the new items -- that also includes an orange spiced coffee drink -- to realize that they may be paying slightly more than they used to at some stores for some drinks.
If Starbucks is able to get away with this feat -- rolling out higher prices at a time when its costs are on the decline -- it will be the biggest feat since Sirius XM Radio pulled off a similar stunt last year.
The satellite radio provider's move was admittedly far more brazen. It pushed through a 12% increase to its subscription rates in January of last year, even though its programming and content costs actually fell in the previous year. However, Sirius XM felt the move was long overdue, as it had agreed to hold off on boosting the price of its monthly plans for more than three years in order to receive regulatory clearance for the merger between Sirius and XM.
In the end, it paid off. Sirius XM continued to post higher subscriber tallies with every passing quarter, and margins shot through the roof.
Starbucks is hoping for a similar scenario -- without the satellites, of course.
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The article Can Starbucks Get Away With a Price Hike? originally appeared on Fool.com.Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Starbucks. The Motley Fool owns shares of 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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