CASE: STARBUCKS INCREASES PRICES Last Thursday Starbucks raised their beverage prices by an average of 1% across
Question:
CASE: STARBUCKS INCREASES PRICES
Last Thursday Starbucks raised their beverage prices by an average of 1% across the U.S, a move that represented the company’s first significantprice increase in 18 months.
I failed to notice because the price change didn’t affect grande or venti (medium and large) brewed coffees and I don’t mess with smaller sizes, but anyone who purchases tall size (small) brews saw as much as a 10 cent increase. The company’s third quarter net income rose 25% to $417.8 million from $333.1 million a year earlier, and green coffee prices have plummeted, so what gives?
Starbucks claims the price increase is due to rising labor and non-coffee commodity costs, but with the significantly lower coffee costs already improving their profit margins, it seems unlikely this justification is the true reason for the hike in prices.
In addition, the price hike was applied to less than a third of their beverages and only targets certain regions. Implementing such a specific and minor price increase when the bottom line is already in great shape might seem like a greedy tactic, but the Starbucks approach to pricing is one we can all use to improve our margins.
Answer the questions:
- Do you think that customers will be dissatisfied with the price increase and switch to competitors? Provide your arguments.
- How can you explain the decision to increase price from the perspective of the company?
- Why do you think Starbucks didn’t raise the prices of all the products?
Accounting Tools for Business Decision Making
ISBN: 978-1118128169
5th edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso