Starbucks Raises Prices Because It Can

It has been hard for most companies with consumer customers to raise prices in the past three years. The economy has been so weak and personal income has not moved higher. An exception to the price trend is Starbucks (NASDAQ: SBUX). The coffee retail firm increased what it charges customers in the Northeast and parts of the Southeast and Southwest by 1%. It raises its prices because it can, which makes it a rare company.

One percent may not seem like much until the price of a Starbucks order is taken into account. Coffee drinks and food can come at prices of $5 or better, so there is some risk in the decision.

But Starbucks has the weight of recent success behind it. After a terrible 2008 and 2009, due to overexpansion, Starbucks revenue more than bounced back in 2010 and 2011. Shares trade at nearly $43, just below the firm’s 52-week high. The stock was below $9 in late 2008.

It is hard to say what Starbucks has done so well, but it has worked. Some analysts believe that CEO Howard Schultz has set clever merchandising plans. This includes more healthy offerings, as well as more foods. Starbucks also markets instant coffee now, under the Via brand, and has expanded more of its business to retail companies outside of its stores.

Starbucks also has branched into some odd businesses that are not coupled with it core. Schultz led a move to withhold contributions to national politicians and set up a program for customers to donate to a fund to help increase American employment. Customers seem to have completely ignored these as eccentricities. People come to Starbucks stores for coffee. The balance of what the firm pushes has not phased them.

Every American retailer or company that sells products to consumers would like to raise prices. Almost none have, because they cannot do so without hurting sales. Starbucks, however, has managed itself into a position where it takes little risk as it moves to increase its margins.

Douglas A. McIntyre