Starbucks Raises US Prices Amid Coffee Price Drop

If you’ve ever wondered why your favorite café raises prices while the cost of coffee beans tanks, here’s a real-world case: Starbucks. Even as arabica coffee futures hit their lowest level in years, the global coffee chain is pushing through a modest price increase on select drinks in the United States.

In short: Starting June 25, 2013, Starbucks US company-operated stores will raise drink prices by an average of 1%, affecting less than a third of beverages. This is the first hike for some regions in 18–24 months, although large cups of fresh coffee, Frappuccinos, and Refreshers remain unchanged.

Why Are Coffee Futures So Low?

As of June 24, 2013, arabica coffee futures on the ICE exchange were trading at $118.85 per pound—down 17% year-to-date and the lowest since July 2009. The all-time high? Nearly $309 per pound back in 1977. One major reason for the drop: Brazil, the world’s top grower of both sugar and arabica coffee, has had abundant supplies. Global coffee inventories rose sharply—up 19.5% year-on-year in 2013–2014, with Brazilian stockpiles surging 200%.

What’s Actually Driving Starbucks’ Price Hike?

Coffee accounts for just 10% of a Starbucks store’s operating costs. “The price increase is to address rising rents, labor, and non-coffee food costs,” said Jim Olson, a Starbucks spokesperson. While brewed coffee makes up part of the experience, Starbucks also sells a wide range of food items including sandwiches, breakfast items, pastries, and ice cream via its global menu.

Starbucks' Financial Context

In Q1 2013 (ended March 31), Starbucks reported operating expenses of $15.3 billion—an increase of 9% year-on-year—but net profit still rose 26% to $390 million, thanks to an 11% revenue growth and higher other income. The coffee giant’s market cap stood at $485 billion as of the report date, second only to McDonald’s ($975 billion) among major restaurant chains.

Selective Price Adjustments

Interestingly, Starbucks responded to lower coffee costs elsewhere: in April 2013, it announced plans to reduce the retail price of its packaged Starbucks and Seattle’s Best brand coffee in the US. Specifically, 12-ounce bags of whole bean or ground coffee dropped from $9.99 to $8.99. This targeted move aimed to keep bagged coffee competitive despite lower input costs.

What About China?

Despite global attention, no price changes have been announced for Starbucks stores in China. When contacted, a Chengdu location confirmed no beverage price hikes were planned. As of the article, Starbucks operated over 500 stores in China and aimed to reach 1,500 by the end of 2015—hoping to make China its second-largest market globally. The brand already held around 61% of China’s coffee market share.

Frequently Asked Questions

When are Starbucks US drink prices going up?

Starting June 25, 2013, Starbucks US company-operated stores will implement a price increase averaging around 1%. The change affects less than one-third of beverages and varies slightly by region. Some areas will see their first hike in 18–24 months.

Which Starbucks drinks are getting more expensive?

Starbucks has not specified exactly which drinks will increase in price, but the adjustment impacts under a third of beverages. Large sizes of fresh brewed coffee, Frappuccinos, and Refreshers are not included in the hike.

Why is Starbucks raising prices if coffee is cheaper?

Coffee beans make up only 10% of a store’s operating costs. The price increase is mainly due to rising expenses for rent, labor, and non-coffee food items like sandwiches and baked goods—not the cost of coffee itself.

Are coffee futures really at a 4-year low?

Yes. As of June 24, 2013, arabica coffee futures on ICE were at $118.85 per pound, down 17% for the year and the lowest since July 2009. The drop is largely attributed to strong supply, especially from Brazil.

Has Starbucks lowered prices anywhere because of cheaper coffee?

Yes. In April 2013, Starbucks reduced the shelf price of its 12-ounce packaged Starbucks and Seattle’s Best coffee in the US from $9.99 to $8.99 to stay competitive amid falling coffee costs.

Are there any price changes in China?

No. As of the report date, Starbucks China locations had not received any notification of beverage price increases. The company continues to expand aggressively in the region.

Recommended FrontStreet Beans for Brewing at Home

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