Sarah Gilbert writes in Daily Finance that Starbucks (SBUX) customers in New York this week could no longer pay for their venti mochas with a five-dollar bill after a 20-cent price hike brought the cost with tax to $5.06. In Seattle, the company’s home, a grande mocha is now $3.91, up 10%. In Washington, D.C., an upgrade to new loose-leaf tea bags also meant an upgrade in prices: A 50-cent hike to more than $2.00 for a mug. What’s more, the company ended its 10% discount for “Black Gold Card” rewards members on the day after Christmas, leading many loyal customers to complain that demand for Starbucks coffee “is not inelastic.”
Elasticity, though, is such a hard thing to measure. Certainly, New York customers on Twitter are (sporadically) complaining they’ll stop shopping there “once my Christmas Stabucks cards are done,” decamping for Dunkin Donuts.
Price Hikes Appear Limited
So far, the specialty coffee price increases seem to be limited to New York, New Jersey, and selected markets in Canada. In Atlantic City, customers groaned at paying $2.50 for a 20-ounce drip coffee. Even in the Westchester County village of Larchmont, New York, specialty coffee and espresso drink prices were up 20 to 25 cents each.
A Starbucks spokesperson said Thursday the changes were part of the pricing moves mentioned by CEO Howard Schultz in the company’s April 2009 analyst conference call. At the time, Schultz called them “minor changes that will lower prices on some of our popular items such as tall lattes and slightly increased prices on our larger and more complex beverages.”
But a phone call to a Starbucks outlet in New York revealed that tall lattes were, in fact, up 20 cents along with the rest of the menu, proof that this pricing increase is a separate issue. Incidentally, the woman who answered the phone at that Starbucks was probably the cheeriest and friendliest coffeeshop employee to whom I’ve ever spoken.
A Possible Gamble
The increases could be a gamble. Customers who rarely visit the coffee chain, upon experiencing sticker shock, may visit even more rarely. Tea drinkers, up until now able to purchase the least expensive sip on the menu, are now moving up the pricing scale toward specialty drink territory. Here in Portland, Ore. my favorite mug went up from $1.65 to $1.95 — the cheapest tea drink on the menu that still includes a $1.50 drip coffee.
Part of drinking tea is the “experience,” certainly, and I’ll raise my hand as a girl who’d prefer a fancy loose-leaf tea bag to the same old paper tea bag I can get at home for 10% of the price. Kudos to Starbucks for that.
Read more at: Daily Finance