Starbucks & Higher Prices, Sort Of (SBUX)

Starbucks Corp. (NASDAQ: SBUX) has come back from the sub-$10.00 category with a vengeance.  In fact, if it rallies another $2.00 then it will have recovered a sharp 200% from lows.  With shares are $19.20, it is actually just $0.49 under its official 52-week high.  And now comes word that Starbucks might be raising the price for some of its drinks.

It has been some time since the base rate of its coffee has gone higher.  But a brief report out of the WSJ this afternoon is saying that Starbucks may charge as much as $0.25 more for some drinks.  But there may be some good news here in that it may charge less for its smaller and more basic drinks.

When Starbucks last raised its prices across the board, it was due to the increase in dairy costs.  The large coffee retailer did not necessarily face the same issues as others when coffee prices went up because it has hedging programs and also has longer-term set contracts for coffee.  But what if you are a coffee drinker that drinks no milk?  It was a subsidized price hike for base black-coffee drinkers absorbing some of the costs of the higher-priced fru-fru drinks.

Recently, sugar prices have gone through the roof.  So there is likely a new factor for some its frappuccino drinks and its sweet sugary drinks.  I could not help but think in recent weeks that Starbucks would announce another price hike soon to counteract the rise in sugar prices after it had already signaled some ‘adjustments’ coming.

If this is is the new price-finding hike, it may be the first ‘fair’ price hike out there if the company does not penalize its base-user.  I am a base-user who asks for no frills.  When I order from Starbucks, it is just about always a Venti coffee.  A large black coffee elsewhere.  Maybe I use an Equal or a Sweet-n-Low, but that is it.

Making a black coffee is also the fastest drink out there.  Usually the line takes longer when it is everyone ahead ordering the more sophisticated coffee drinks too. So the base customer has been paying more to subsidize the fancy drinks, and they have gotten to wait to longer if the lines are longer as the staff is busy making the more complicated drinks.

It seems that this is going to be done on a pilot basis in several cities to see how it works out.  The company has already signaled that price ‘adjustments’ would be coming.  If the price scale adjusts to something more normalized then it may be the first ‘fair’ price hike out there.

If the basic drinks and smaller drinks are going to start costing less, there is a take here that perhaps Starbucks will actually stop penalizing its customers.

JON C. OGG
AUGUST 20, 2009