Seattle-based Starbucks Corp plans to raise prices by 1% in the Northeast and the Sunbelt states. This is the first across-the-board price increase since 2007.
In November, Starbucks raised its prices in cafes located in the Midwest, Hawaii and the Pacific Northwest as well as California and Florida. And while Starbucks has yet to release a list of all the locations affected by the increase, the regions targeted include major metropolitan areas such as New York City, Boston, Washington D.C., Dallas and Atlanta.
The price for a “tall” 12-ounce latte and brewed coffee will rise by 10 cents. The cost of six other drinks also will increase.
Starbucks’s most popular drink size, the 16 ounce “grande”, will not be affected and has not had an increase in prices since January 2011.
The price of packaged coffee sold in both cafes and grocery stores increased last year.
The company’s decision was influenced by the rising cost of coffee, milk, fuel and other commodities, as well as competition from rising competitors.
In October, the coffee chain made contracts to buy coffee, but at the time, prices were steadily rising and the company wanted to lock in its prices to avoid further increases. Shortly thereafter, however, coffee prices began to fall, leaving the company to pay more than it otherwise would have.
Edward Jones analyst Jack Russo told Reuters: “They're trying to protect their profits and margins. Everyone else is doing it, so why not they?”
Increasingly, Starbucks is also facing competition from a range of chain food retailers. McDonald’s sells lattes and brewed coffee for less than Starbucks, and Dunkin’ Donuts announced this week it plans to double the numbers of its locations over the next 20 years.
Currently, Dunkin’ Donuts controls 23% of the coffee and snack shop market, and operates 7,000 locations throughout the US; Starbucks controls 32.6% of the market share and operates 11,000 stores.
Not all competitors offer lower prices. Premium-coffee chains such as Coffee Bean & Tea Leaf, Lavazza and Intelligentsia have higher prices. A 12-ounce latte at Intelligentsia, for example, costs $4 compared to $2.85 at Starbucks.
Starbucks predicts it will make a profit of $1.75-$1.82 per share in 2012, an increase of 20% over last year. Shares in Starbucks rose 43% in 2011.
Key Statistics – Global Hot Beverages Market (source: Global Industry Analysts)
- By 2015, it is predicted the global market for coffee and tea will reach $70 billion in value.
- The global market for coffee and tea is predicted to reach 10.6 million tons in volume by 2015.
- Markets in the Asia-Pacific - especially China, India, and Sri Lanka - are likely to have a compounded annual growth rate of 3.6% by 2016.