Brazil, the world’s largest supplier of coffee beans, harvested 40% less arabica coffee in 2021 than it did the previous year. This was due to droughts in certain areas and frost in July.
The global shortage of coffee beans has ripple effects on coffee prices around the world, and Starbucks is no exception. However, Starbucks coffee prices have been rising even before the supply chain crisis.
So, why is Starbucks so costly? Starbucks’ high price tag may be due to 6 factors.
Starbucks: Why is it so expensive?
Starbucks’ high prices can be attributed to a variety of factors including brand loyalty, operation expenses and business strategy.
These include recently raised wages, restocking and outlet maintenance. These are the main reasons Starbucks is so expensive, but they’re not the only reason. Starbucks reported a 25% increase in its third quarter net income.
Starbucks’ high pricing is due to their value-based pricing strategy and overall marketing strategy.
Labor costs
Let’s first look at Starbucks’ labor costs before we get into the pricing strategy. The highest expense of any business is labor costs, especially for retailers who emphasize quality services.
Starbucks offers a wide range of benefits, including a generous salary, extensive training, professional development, and a comprehensive benefits program.
We can therefore expect excellent service and delicious drinks like iced coffees, Chai tea, and the now discontinued Peach Green Tea Lemonade. Iced Caramel Macchiato and Pumpkin Spiced Latte are also favorites.
Starbucks has to train its baristas to make drinks fast and accurately during rush hour.
Layout and location
Starbucks has over 14,000 locations in the US. Each store is strategically located in high-traffic areas. Starbucks is convenient for anyone who rushes to get to work every morning.
Starbucks also has locations in urban centers and areas with wealthy customers. These prime locations are more expensive to rent, which will increase Starbucks’ operating expenses.
Starbucks places a high value on its store layout and atmosphere to make it stand out from other competitors. Starbucks’ high price tag is due to its store design, furniture, as well as other amenities like WiFi.
Starbucks is also paying for its unique position as a place where people feel at home, rather than just a coffee shop. Their mission statement reflects this: “To inspire, nurture, and sustain the human spirit – one individual, one cup, one neighborhood, at a time.”
Pricing Strategy
Starbucks has been more expensive than its competitors since before the coffee bean shortages and the COVID-19 pandemic. It is clear that there is another factor in Starbucks’ pricing: their value-centric pricing strategy.
Value-based pricing is a method of setting a price that is based on customers’ perceptions of the product’s value. Starbucks does not price its products to pay for costs. Instead, they price their products to maximize profit margins and deliver superior value.
This is achieved through a pleasant service experience, a cozy atmosphere, and a cleverly differentiated product offering.
This is how it works: Starbucks is the only place people will buy. Yes, there are competitors like Dunkin Donuts and Costa Coffee, but they just don’t sell the same coffee.
Ethical Sourcing
Starbucks’ ethical sourcing of sustainable products is another reason it is so costly. Starbucks made it clear that they are fair to their farmers and support programs that improve the farmers’ lives.
Coffee and Farmer Equity (C.A.F.E. ) is one such initiative. These practices were first launched in 2004. This program is designed to support farmers and promote transparency in their supply chains.
Your Cinnamon Roll Frappuccino might be more expensive, but your money will go to farmers and ethical businesses.
Loyal Customer Base
Starbucks is the world’s largest coffee retailer, with the US the largest customer base. For perspective, Americans consume more than 4,000,000 cups of Starbucks coffee each day.
These customers are not only loyal to Starbucks, but they will go to any length to obtain their holiday-exclusive drinks. Starbucks also offers a loyalty program that rewards customers who return to the store with points for each transaction.
Starbucks’ loyal customer base allows it to raise prices without fearing a decrease in sales.
Taste
Starbucks coffee is more expensive than regular coffee because it tastes better than the ones at your local convenience store. Starbucks uses exceptional ingredients like milk, syrups, honey, and other sweeteners to enhance the taste of their coffee.
Because of their deliciousness, Starbucks also makes pastries and cakes. Paying for what you get is the best way to enjoy better food.
Conclusion
Starbucks has been criticized for being too expensive for many years without ever receiving an adequate answer. Starbucks prices are more expensive than those of its competitors due to higher quality and value-based pricing as well as operating costs.
Are you convinced that Starbucks’ high prices are justified by all of these factors? Which is it? Comment below to let us know!
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