You may want to spend an extra minute or two savoring your next cup of joe from Starbucks. The global coffeehouse chain just raised the price of a regular drip coffee by 10 to 20 cents in most locations, making a “tall” brew around $1.95 to $2.15, depending on where you are. Fortunately, the chain isn't generally spiking prices on any other type of beverages, so your Frappuccinos and Chai lattes should be safe for now.
But wow! Two bucks for a cup of plain black coffee? I can almost hear my late grandfather grunting in disbelief. And this morning I literally heard my fiancé, Patrick, whose morning ritual includes a Starbucks run, throwing a fuss when he returned from our nearest branch in Los Angeles.
"This coffee is already too expensive," he complained. "Now it’s 20 cents more. This is ridiculous. I'm switching to Dunkin Donuts up the street!"
"And I'm replacing the Mr. Coffee machine so we can go back to brewing our own,” I cried. “This has gone too far."
Then I consulted some coffee industry experts along with Starbucks and realized that while, yes, maybe spending a combined $120 a month on fresh coffee in sleeved cups isn’t the smartest financial decision for a couple looking to buy a house in the next few years, but Starbucks has sound reason to up the price on its most basic offering.
Starbucks says its in line with industry practices and inflation
“Starbucks continually evaluates pricing on a product-by-product and market-by-market basis,” a spokesperson for the brand told NBC News BETTER in an email. “Evaluating prices periodically allows us to balance the need to run our business profitably while continuing to provide value to our loyal customers and to attract new customers.”
“In the past year, Starbucks increased prices 1 to 2 percent which is on par with the industry practices and is in line with food away from home inflation which is 2.2 percent to 2.4 percent,” the spokesperson added.
Are customers paying for Starbucks’ fallout training after the racism scandal? Probably not
Still — the timing of Starbucks’ price increase had me skeptically raising a brow. On May 29, Starbucks closed 8,000 locations for anti-bias training, an initiative that followed the wrongful arrest of two black men in a Philadelphia Starbucks last April. Are the associated costs (and possible profit loss) with the incident, training and temporary closures in some way being pushed on to the consumer?
Starbucks asserts that the training is unrelated to the price increase.
“This price adjustment was not related to last week’s store closures and trainings,” said the spokesperson.
Experts unaffiliated with Starbucks suggest that this is likely true.
“I do not believe that the cost of the anti-bias training is related to the raise in prices,” says Amy Cooper Hakim, PhD, who heads The Cooper Strategic Group, which specializes in workplace training and coaching. “Organizations of this size incorporate costs for cultural awareness training in their budgets. The loss of sales due to the closing of stores for the training efforts likely plays into the larger figure expressed for the overall cost of the initiative. Still, when leadership makes a point to offer diversity and cultural awareness training, this is seen as an investment in the employees within the organization. The return on investment is not only a more culturally accepting workplace, but also a more culturally accepting store for customers.”
Additionally, as Jonathan Doh, PhD, professor of management & operations, international business department chair; associate dean of research and faculty director of the center for global leadership at Villanova School of Business points out, the price increase was probably planned well before the scandal that led to the training.
Starbucks has great employee benefits — and that’s not cheap
“I highly doubt the price increase is directly related to the diversity initiatives,” says Doh. “I think these things are on two different tracks. My strong suspicion is these price increases are designed to recoup expenditures on employee benefits.”
And those employee benefits are cushy when compared to most other quick-serve establishments. At all levels of the company, depending on hours worked, Starbucks offers healthcare, full tuition coverage with Arizona State University, career sabbaticals and more.
Andy Hoffbauer, a barista who has worked in managerial positions at a few coffeehouses (excluding Starbucks), most recently at Steel City Coffeehouse in Philadelphia, says that these perks are pretty rare in his world.
“Nowhere else provides these type of supports to people who aren't administrative or managerial staff,” Hoffbauer says. “Paying for a degree that may not even be used [at Starbucks]? That’s amazing — and unheard of elsewhere in the coffee business.”
That basic brew is pricier to create than you thought
Though Hoffbauer hasn’t worked at Starbucks, his experience in the managerial side of the coffee business enables him to give a pretty good guess at how much a cup of coffee costs the company to make on average.
“Coffee is about $8 a pound, depending (and Starbucks may get it for cheaper), which gets you about 26 small cups of coffee. So for just the coffee, that’s about 30 cents a cup.”
Now that sounds like my grandpa’s kind of price expectations! But don’t forget everything else that goes into making that cup: staff, real estate, utilities and machinery and then the other commodities like various types of milk, sweeteners, napkins and so on.
The waste factor is also significant.
“Every couple hours you need to re-brew,” Hoffbauer says. “You could be dumping a couple gallons a day. You also have to factor in spills and people ordering something and being misheard by the barista or changing their minds.”
Starbucks also spoke to the variety of costs in its email statement.
“There are many factors that contribute to pricing decisions, including various operating and occupancy expenses (i.e. rent, labor, local mandates and regulations, competition, distribution, marketing, and commodities — including coffee — but also other commodities associated with beverages, foods, materials and operations). Coffee commodity costs are only part of our value equation, historically comprising a relatively small percent of our overall store operating and occupancy expenses,” the spokesperson said.
Starbucks has created a special stickiness in customer experience
When you take all that into consideration, $2 for a cup of sounds less outrageous. Then add in the customer experience, which is designed to be impeccably efficient while still seeming chill.
“My main expertise is in global trade and I go to Starbucks all over the world,” says Doh. “There is consistency and familiarity and even when the wait looks long it usually isn’t, which is a great consumer experience. There's this whole constellation of experiences and I bet a lot of money goes into it. Starbucks has created a kind of glue or stickiness between the Starbucks experience and the customer. That glue is profound, and I think it would take a lot more than a relatively small price increase to dislodge it.”
I still think I need to spend less on coffee, but I’m no longer judging Starbucks negatively for upping the price. Turns out, a heck of a lot goes into that one cup of joe.
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