SBUX - BREAKING NEWS?

The Wall Street Journal is reporting that SBUX is going to start charging up to a quarter more for some drinks.  My first reaction was that for a company that is currently trying to fight the perception that its drinks are too expensive, it might be a little premature for the company to raise prices. 

 

Starbucks’ same-store sales growth improved in fiscal 3Q09, but management attributed these sequentially better results to its value combo offerings and limited time promotion of iced coffee for under $2.  Value is working right now to drive traffic for the company (only less negative) and by raising prices, SBUX runs the risk of damaging this value perception.

 

The reality is that the WSJ only has part of the story.  The price increase is consistent with the company’s comments from its Q2 earnings call as it relates to SBUX’s “new pricing architecture,” which began rolling out May 5 in several key markets and will continue over the coming months.  The goal is to provide value to customers while managing margins.   

 

The end result of the “new pricing architecture”, SBUX is fine-tuning its pricing in select markets to better reflect geographic and cost considerations.  There will be minor changes that will both lower and raise prices.  It’s important to note that this is the first time in the company’s history that it has lowered prices.

 


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