Saturday, October 16, 2004
Copyright © Las Vegas Review-Journal

Public buzzing after Starbucks raises prices

Customers enjoy their drinks on the patio of the Starbucks at Village Center Circle in Summerlin on Sunday. The company raised prices on its drinks an average of 11 cents a cup on Oct. 6. Photo by JANE KALINOWSKY/REVIEW-JOURNAL Customers sit inside a Starbucks on April 14 in Seattle. Prices at Starbucks went up an average of 11 cents a cup on Oct. 6, but regular customers say the increase is unlikely to keep them away. ASSOCIATED PRESS FILE PHOTO

Eleven cents isn't enough to buy a gumball from a machine or send a postcard across town. But it's enough to raise a furor, at least among some Starbucks coffee drinkers.

On Oct. 6, the Seattle coffee giant raised drink prices at company-owned stores in North America by an average of 11 cents, or about 3 percent by Banc of America Securities estimates.

In a statement announcing the increase, Starbucks Corp. noted it hadn't raised drink prices since 2000. Chief Executive Officer Howard Schultz told CNNMoney higher health care, dairy and coffee costs combined to prompt the increase.

Coffee and sugar prices, up 36 percent and 39 percent, respectively, by Bloomberg News estimates, may have figured in the drink-price increase. The boost is showing up at the company's 88 Las Vegas Valley outlets, which include both free-standing stores and supermarket kiosks.

The Starbucks story sparked nationwide buzz, starting in The Wall Street Journal and spreading to CNN and even NBC's "Today" show. It also left some local coffee drinkers re-examining their habits, or shrugging.

Chris Bradshaw, a 47-year-old who lives in Dallas but is in Las Vegas weekly to operate Lasvegas.com, visits Starbucks three times weekly for venti decaf mocha lattes. She knew her drink's preboost price by memory: $3.60.

"I already know I'm spending too much money," Bradshaw said. "The price increase may cause me to think about the price in a way I haven't thought of it before. But I doubt it will make an impact; it won't change my habit."

Shelli McCormick, a 31-year-old Las Vegan, said she cut her Starbucks consumption before the increase. She used to go four or five times a week for grande soy chai lattes, but now she goes just twice.

"Right now the difference in price isn't that much." McCormick said. "But it makes you wonder how often they'll raise their prices. It's expensive as it is."

Executives at rival Southern Nevada java joints say their clientele has been chattering for days about Starbucks' suddenly pricier coffee. But Gerry Alesia, a co-franchise owner of It's a Grind, which operates four local shops, and Jitters Chief Financial Officer Chris Beeson, whose company operates six local shops, said they don't plan to raise their prices.

Jeffrey Fine, who operates 10 Coffee Bean & Tea Leaf shops in Southern Nevada, however, said he's considering a price boost.

"There's pricing pressure across the board. Coffee is up, milk is up. Cups, lids, everything has gone up," he said. "I think what happens at Starbucks reflects what's happening across the industry. That price increase that Starbucks has made and that we're contemplating won't come anywhere near to covering the increased costs we've incurred."

Fine wasn't so sure coffee hounds would drop Starbucks and head to his shops, but he hoped so. At least one Starbucks drinker, Summerlin resident and freelance writer Ruth Furman, said she'd try a rival. When she heard of Starbucks' pricier drinks, the 38-year-old moved a networking meeting to It's a Grind.

Furman said she admires Starbucks' efforts to treat its workers well and serve local communities. But, she said, the coffee's getting expensive.

"The Starbucks price hike is enough to make me change my habits on principal," Furman said. "While I admire the way the Starbucks is run ... at nearly $2 for a cup of drip coffee, the prices are getting a bit crazy."

Morningstar analyst Carl Sibilski told CBS MarketWatch recently that Starbucks' price increase would help the company boost profits while perturbing customers minimally. Stock traders bid up the company's stock 2.5 percent in the two days following the Sept. 27 price-boost announcement, sending it to $45.50 from $44.38. Shares continue to climb, closing at $49.47 Friday, up $2.08 for the week.

"I think they'll be able to get away with this price increase without upsetting too many customers," Sibilski told CBS MarketWatch. "This is more of an efficiency issue for them. It's a way to squeeze more money out of their existing stores."

The price boost isn't inspiring angst or anger in everyone. It left Mark Olson, a 47-year-old Henderson resident, laughing. An 11-cent price increase didn't make him blink at gasoline pumps, he said, and neither will this.

"It's hysterical," he said. "If I'm stupid enough to pay $2 for something I can make at home for less, what difference does it make if they raise the price by 11 cents?"