In the last quarter Starbucks has raked in over $380 million in profit from coffee sales, with a profit of around $2.55 per bag, according to a source at Bloomberg Businessweek. The 10% cut means that Starbucks would need to sell around 65 percent more bags in order to turn over the same profit.
So what is the reason behind Starbucks cutting prices?
According to Kyle Stock from Bloomberg Businessweek, the firm could be betting on widening income inequality. In major retail there has been a continuing growth at the high and low ends of the socioeconomic scale and Starbucks does already have a good proportion of the top end of the market with its $6 barista brewed drinks. The $10 bags of coffee fall very much in the middle end of the scale.
Starbucks is also cutting prices as it has been targeting the grocery store shoppers dollars by expanding the number of products it has available in those particular stores. Other companies such as Dunkin’ Donuts have been dropping their prices so it the pressure really was on Starbucks to do the same.
It is expected that the discounts will kick in around the 10th of May and this will also cover the lesser known Seattle best brand which is also a Starbucks initiative. The discount really only applies to the price of the wholesale coffee, so the retailers are still able to set their own prices. This means that depending upon the retailer; some customers may see no price change at all.
The coffee chain also announced recently that it would be expanding it’s currently loyalty programme. Under the new system customers would be able to collect points for not only purchasing its products in store, but it will now also include grocery stores. So if the customer purchases Starbucks coffee outside of a cafe, the customer will still get Starbucks loyalty points.
A Starbucks spokesman has said that the new prices will allow the chain to enhance the value that they already provide to their existing packaged coffee customers. The idea is that with the new reduced prices, the existing customers will increase how often they purchase both the Starbucks and Seattle’s best coffee. The price drop should also in turn serve to attract new customers to the Starbucks chain and aid the store in reaching its targets.
With other firms also slashing their prices, it really is a good time for customers to take advantage of Starbucks cutting prices.
