By Quentin Fottrell
Some Starbucks customers are getting a New Year’s price hike with their caffeine boost today. But will the company’s customers care – or even notice?
The coffee giant said Tuesday it’s raising some prices by 1% in the Northeast and Sunbelt regions. That means those buying coffee in cities like New York, Boston, Atlanta and Dallas will pay extra. In New York City, a “tall” (12 ounce) brewed coffee and tall latte beverages prices increased by $0.10. Pricing for a “grande” (16 ounces) brewed coffee, the company’s most popular beverage, remains unchanged across all markets.
But analysts caution that Starbucks needs to be careful not to alienate customers on the first official working day of the New Year. “It’s probably not the smartest thing in the world to do – given the economy,” says Robert Passikoff, founder and president of marketing consultants Brand Keys. “They’re raising prices in areas where folks might not be as price sensitive to the increase.”
Seth Rabinowitz, partner at management consulting firm Silicon Associates, agrees the timing isn’t great. “It’s irksome to many observers that in tough economic times a company with healthy year over year growth would hike prices.”
Jim Olson, a spokesman for Starbucks says there’s no one-price-fits-all-markets pricing policy. The company needs to balance the cost of doing business with the “competitive dynamics” in these markets, he says. “We approach pricing on a long-term, product-by-product, market-by-market basis,” Olson says. The price increases do not include Southern Florida or California.
That said, as long as Starbucks keeps most drinks below $5 and doesn’t make any dramatic across-the-board price hikes, customers probably won’t complain, these experts say. “Five bucks is such an important psychological threshold, especially if there are many $2 options,” Rabinowitz says. (A “venti” or 20-ounce Frappuccino in New York stores costs around $5.45.) Edgar Dworsky, founder of ConsumerWorld.org, says a 10-cent increase on a cup of coffee will hardly be noticed by most Starbucks patrons: “The fact that they buy their coffee at Starbucks suggests that they are not very price sensitive to start with.”
Starbucks has been hinting at these hikes for months. As SmartMoney.com reported, the company cited inflationary pressures in coffee, cocoa, dairy products and fuel, and raised prices on its whole bean packaged coffee by 17% last July. “Our cost of doing business includes operating expenses such as distribution, materials and commodities,” Olson sa