Starbucks Corporation (NASDAQ:SBUX) customers have to start getting ready to pay more for that morning cup of java. The retail coffee juggernaut announced Monday it will start to raise prices on its drinks beginning Tuesday. The price increases will range between five and 20 cents for most drinks.
Raising Prices as Coffee Costs Decline
The last time the Seattle-based company hiked prices was about a year ago.
Starbucks, which is one of the most visited stores in the United States, said about 20 percent of its customers will feel the price hikes. A small and large brewed cup of coffee will each rise by 10 cents. This would mean a large coffee will come with an average cost of $2.45 in most U.S. stores. Lattes and mochas will go up by 30 cents. Tea will only increase slightly.
Other popular beverages, like the frappuccino, will not be affected. Food product prices will also not be touched – the company is attempting to urge customers to purchase more food products along with their coffee orders.
Ten percent of Canadian stores will also see prices rise.
Starbucks cited rent, marketing, equipment and labor costs as justification for nationwide price increases.
Seattle area residents will be affected the most by this price hike. It’s expected that Seattleites, including the counties of King, Pierce and Snohomish, will pay upwards of 3.5 percent more on their orders.
It remains unknown as to why exactly Starbucks is exponentially raising prices in Seattle compared to the rest of the country. Experts are alluding to a stronger economy, a booming real estate market and a technology boom as reasons for this price .
Coffee Costs on the decline
Despite the rise in prices, coffee costs are on the decline, and other coffee sellers are slashing prices.
For instance, J M Smucker Co (NYSE:SJM) confirmed its cutting prices for most of its coffee products. Its bagged Folgers and Dunkin’ Donuts coffees will be lowered by six percent. Many expect Kraft Foods Group Inc. to also cut its prices for its Maxwell House brand.
This is because future prices for unroasted coffee beans have fallen. Arabica futures prices have tumbled 42 percent from its peak late last year.
The move by Starbucks comes as a plethora of other fast-food retailers have raised prices, particularly in states where the minimum wage has gone up.
An example of this is Chipotle Mexican Grill, Inc. (NYSE:CMG). The company has hiked prices in cities with higher minimum wages. San Francisco, which now has a minimum wage of $12.25, saw its biggest price increases. Chipotle’s menu prices have spiked about 10 percent, compared to the estimated four percent in other cities.
Starbucks Stock Rising Steadily
Starbucks stock has been on a tear. Year-to-date, the stock has soared more than 13 percent to more than $50. In the last five years, the stock has more than doubled from just over $10.
At the time of this writing, Starbucks shares are trading at $54.04.