I’m not an economist, but I have trouble understanding how in the midst of a life-changing economic climate, Starbucks decided to drop some prices (on basic pours) and increase prices on more elaborate drinks. This comes at a time when people are questioning how much they should pay for a cup of coffee. With competition among the brewers an on-going price war, why would they decide to raise prices now? (If you think you’ve escaped the increases or not received the reductions, stay tuned: Pricing varies by location and the new pricing rollout will eventually affect all the stores).
Yes, there are some signs we are moving, OK, crawling out of the demise, but every analyst has said we are not the same in our spending patterns as we were a year ago. If a year ago we had two Starbucks specialty drinks a day, we now are more likely leaning toward the basic drip. That’s funny, they are less costly and now they are the focus of reduced pricing. I feel like I need a quick course in psychology or logic to truly understand the process. They’re lowering prices on lattes and brewed coffees and raising them on Frappuccinos which as far as I can tell require little more than a push of a blender button.
The question to ask is who will buy the drinks? If there are more customers complaining about high costs, and they’re still Starbucks customers, will this strategy flip them over the edge? Of course, it’s hard to know, and it’s easy to second-guess. The concept just seems illogical.
When does a cup of coffee become just a cup of coffee? Starbucks created a coffee experience: A place, a destination with an expansive menu of almost unlimited combinations. We are different now. People seem to linger with their non-fancy brewed coffees.
Obviously, McDonald’s and its McCafe specialty drinks are proof that price matters and people are willing to forgo an experience in favor of affordability.
Get your coffee sleeves ready.
#1 by swag at August 21st, 2009
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You raise prices because your costs are higher. Some *$ beverages require a lot more labor and are not priced appropriately. (Let’s face it, labor costs account for the biggest share of what makes up the price of a Starbucks coffee.) Others that are simpler to hand out are made cheaper.
Starbucks is looking to rebalance things for profitability, is what this sounds like. Since they have struggled at the top line (6% sales decline the previous quarter, 8% decline the one before that), it sounds like they’re trying to squeak out profits at the bottom line instead.
And Starbucks can probably get away with the mixed messages and still stay profitable, because most people who go there really don’t like coffee anyway — Starbucks just makes them think they do while selling them a $4 milkshake.
#2 by Will Forbes at August 23rd, 2009
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All this is interesting but it doesn’t explain why Starbuck’s has lost its way. Case in point. When I’m in NYC I no longer go to Starbucks of which there are at four within walking distance of 42nd and Lex. I go to Machiatto – a small coffee shop that gives you their products in a china cup. Furthermore, since I am a cappucino junky (and machiattos late in the day) I appreciate that Maciato makes a killer cappucino which is almost impossible to find at Starbucks. At Starbucks it is always a latte with some foam.
With regard to food products – I wonder why Starbucks cannot find a good – quality purveyor of croissants.
Starbucks used to be great – it is now just another option in a crowded market where Starbucks is just not special any more.
#3 by Bill at August 25th, 2009
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I’m no economist, but I bet the change has nothing to do with labor costs and more to do with market research.
There’s two starbucks consumer groups – those that drink coffee and those that drink everything else.
They have this line of new shakes/smoothies that have nothing to do with coffee. I imagine they are looking to jamba juice for pricing. But if they price the smoothies way over the other drinks it will look bad (imagine two friends where one gets the $5 smoothie and the other gets the $3.00 latte). By raising the price of the other specialty drink they make the smoothie stand out less.
As for the coffee drinkers – maybe they are losing -they have to be losing – the market of coffee drinkers to their (new and old) competitors.
Just my opinion.
#4 by admin at August 26th, 2009
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Interesting. Think pricing is always a big issue–they obviously want to hold on to the quick pour drinkers as the price drop brings Starbucks more in line.