Starbucks (NASDAQ:SBUX) is raising prices on Tuesday (June 25) for the first time in 18 months—and getting a Trenta-size helping of trouble because of news stories pointing out that the price of coffee beans is at a three-year low.
The coffee chain announced the 1 percent average price hike on drinks in its stores on Friday (June 21), complete with the usual details: It's the first price hike in 18 to 24 months (depending on which market a store is in), and many drinks won't change price at all. But an Associated Press reporter filled out the story by pointing out that "the price hike comes despite falling coffee costs that have boosted the company's profits." That quickly became part of the standard headline for the story. For some bloggers, it became the whole story.
It's not as if Starbucks hid the fact that arabica coffee bean futures have dropped from almost $3 per pound in late April 2011 to around $1.20 now. And a spokesperson for the chain pointed out that the raw beans represent less than 10 percent of the cost of Starbucks menu items. Some of those other costs have undoubtedly gone up over the past two years.
The real question is whether Starbucks could have done anything short of providing a spreadsheet—"here's where costs have gone up, here's where they've dropped, this is new-store costs, here's what falls through to profits"—to avoid this public-relations tempest-in-a-coffeepot.
The answer: probably not. Nobody (except competitors) likes a price increase, and Starbucks has a high enough profile that if it says prices will rise, it's going to make the news—and reporters will try to make it a better story. (Ironically, the biggest Starbucks drinks—the ones reporters are most likely to be scarfing down—won't be going up in price at all.)
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