Starbucks (SBUX) Raises Prices Following Management’s Miscue
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According to the WSJ Wednesday, Starbucks (Nasdaq: SBUX) announced it will be raising prices again, something the company has done on an annual basis since the recession began.
The company only plans to increase prices in the Northeastern and Sunbelt regions. The price increase will be roughly 1 percent and is expected to affect a majority of the southern states except for California and Florida. The new pricing strategy is an effort to fight back against rising commodity prices, Starbucks claims. The company does not yet plan to increase the prices on its pre-packaged coffee, which is found at local cafes and grocery stores.
While the company may claim the new pricing strategy is due to rising commodity costs, others may state it’s designed to make up for a bad decision made by the management team. Back in October when the price of coffee continued to increase and didn’t look like it would lower any time soon, Starbucks entered contracts to purchase coffee for the entire fiscal year at the present rate during that time. This was an attempt by management to get a low fixed rate and avoid buying coffee down the road when prices may have been extremely high. As we know, the price of coffee has actually fallen since then and Starbuck is now forced to purchase their coffee at prices higher than the current price.
Although the company’s plan to try to cut costs didn’t work out for them yet, the move could still help down the road if the price of coffee sees another spike. Also, while it wouldn’t be right to fire the company’s Chief Financial Officer, Troy Alstead, because of his mistake, it also isn’t right to make your customers or investors pay for your mistakes. That’s right Mr. Alstead, I mean no bonus for you this year.
The company only plans to increase prices in the Northeastern and Sunbelt regions. The price increase will be roughly 1 percent and is expected to affect a majority of the southern states except for California and Florida. The new pricing strategy is an effort to fight back against rising commodity prices, Starbucks claims. The company does not yet plan to increase the prices on its pre-packaged coffee, which is found at local cafes and grocery stores.
While the company may claim the new pricing strategy is due to rising commodity costs, others may state it’s designed to make up for a bad decision made by the management team. Back in October when the price of coffee continued to increase and didn’t look like it would lower any time soon, Starbucks entered contracts to purchase coffee for the entire fiscal year at the present rate during that time. This was an attempt by management to get a low fixed rate and avoid buying coffee down the road when prices may have been extremely high. As we know, the price of coffee has actually fallen since then and Starbuck is now forced to purchase their coffee at prices higher than the current price.
Although the company’s plan to try to cut costs didn’t work out for them yet, the move could still help down the road if the price of coffee sees another spike. Also, while it wouldn’t be right to fire the company’s Chief Financial Officer, Troy Alstead, because of his mistake, it also isn’t right to make your customers or investors pay for your mistakes. That’s right Mr. Alstead, I mean no bonus for you this year.
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