Why Starbucks Raised Prices While Coffee Bean Costs Fell

It’s not news that Starbucks isn’t the place to go for a cheap cup of coffee. What you’re really paying for is the experience — the ambiance, the service, the brand — not just a brewed beverage. But this summer, many customers noticed something odd: while global coffee bean prices were dropping, Starbucks raised prices on most of its drinks.

In short: global Arabica coffee futures fell 44% from their October peak to July 6 — yet Starbucks increased prices by 5–20 cents per drink. A grande (16oz) or venti (20oz) now costs more, even as the raw material got cheaper.

What Actually Happened With Coffee Prices?

Coffee prices have been on a wild ride. Arabica futures, the global benchmark for high-quality beans, hit their highest point in October. But by July 6 — the same day Starbucks announced its price hike — they had dropped 44%. That steep decline should have led to lower retail prices, and some companies did cut back. J.M. Smucker, for example, reduced prices on Folgers and Dunkin’ Donuts brands by an average of 6% in late June.

But not Starbucks. The company kept its packaged coffee bean prices steady and instead raised drink prices in its stores. On July 6, a spokesperson said most coffee-based drinks would go up by 5–20 cents. At one Manhattan location, the venti (20oz) went up 10 cents to $2.55 pre-tax, while the grande (12oz) stayed at $1.95. Food prices didn’t change. Overall, the company estimated the average customer would pay about 1% more.

Why Did Starbucks Raise Prices When Coffee Got Cheaper?

According to Starbucks, coffee beans make up less than 10% of its total costs. The rest goes to rent, labor, employee benefits, equipment, distribution, and marketing. “We’re balancing value for our loyal customers while also attracting new ones,” said spokesperson Lisa Passe. In other words, the price you pay isn’t just for the coffee — it’s for everything else that comes with it.

Jim Olson, another Starbucks rep, added that the company aims to strike a balance between profitability and customer appeal. But financial strategy also plays a big role. Back in July, executives revealed that 80% of the coffee for the next year had already been priced through forward contracts or hedging. That means Starbucks locked in prices earlier, possibly even at higher rates, and isn’t fully benefiting from the recent market drop.

Economist Hamish Smith from Capital Economics pointed out that companies like Starbucks can’t afford to be caught off guard by sudden price spikes. By hedging, they avoid volatility — but when prices fall unexpectedly, those early purchases can backfire, leaving the company paying above-market rates for its coffee supply.

What’s Behind Starbucks’ Pricing Power?

Starbucks’ ability to raise prices despite falling costs isn’t just about hedging. It’s also about perception and loyalty. The company has built a reputation for consistency, convenience, and a premium experience. Mobile payments, which now account for 20% of in-store transactions in the U.S., make it even easier for customers to pay without thinking about the actual amount.

CEO Howard Schultz noted during a call that mobile payment usage had doubled in two years. That seamless experience might make customers less sensitive to small price changes. And historically, Starbucks prices haven’t always aligned with commodity costs. For example, the small 8oz cup in 1994 cost $1.25 (equivalent to about $2.01 today), while today’s smallest size is 12oz and costs $1.85. In real terms, you’re actually paying slightly less now than you did decades ago.

The stock market has rewarded Starbucks for its pricing decisions. Since July 6, the company’s stock has risen 5.4%, outpacing the S&P 500’s 1.3% gain. Over the past year, Starbucks shares are up 51% including dividends, compared to the S&P 500’s 9%. Over five years, the gap is even wider: 412% vs. 115%.

Frequently Asked Questions

Did coffee bean prices actually fall in 2023?

Yes. Arabica coffee futures, the global benchmark for high-quality beans, peaked in October 2022 and had fallen 44% by July 6, 2023 — yet Starbucks raised its drink prices during that period.

How much did Starbucks raise its drink prices?

Most coffee-based drinks went up by 5–20 cents. For example, a venti (20oz) increased by 10 cents to $2.55 pre-tax in one Manhattan store, while a grande (12oz) remained at $1.95.

Why didn’t Starbucks lower its prices if coffee got cheaper?

Starbucks said coffee accounts for less than 10% of its total costs. The company also hedges against price swings, meaning it may have locked in higher prices earlier. Plus, it considers rent, labor, and other overheads when setting drink prices.

Has Starbucks raised prices before when coffee was expensive?

Yes. Starbucks has historically adjusted prices for reasons beyond just raw bean costs, including rent, labor, and market positioning. For example, a small 8oz cup cost $1.25 in 1994 (about $2.01 today), but the equivalent today is a 12oz cup for $1.85.

Are other coffee brands lowering their prices?

Some are. J.M. Smucker reduced prices on Folgers and Dunkin’ Donuts brands by an average of 6% in June 2023 as coffee futures fell. But Starbucks kept its in-store drink prices higher.

Why is Starbucks stock doing well even as coffee prices drop?

Starbucks’ strong pricing power, loyal customer base, and effective cost management have impressed investors. Its stock rose 5.4% after the price hike announcement and has outperformed the S&P 500 significantly over one, five, and ten-year periods.

Recommended FrontStreet Beans for Coffee Explorers

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