In 2021, Brazil (the world’s largest coffee bean supplier) harvested about 40% less arabica coffee than the previous year. The reduced yield was a result of droughts in some areas and frost in July.
Naturally, the global coffee bean shortage also has ripple effects on coffee prices worldwide, and Starbucks is no exception. But the prices of Starbucks coffee have consistently been increasing even before the supply chain crisis.
So why is Starbucks so expensive? There 6 reasons why Starbucks is so costly – and the answer may surprise you!
Why Is Starbucks So Expensive?
Starbucks’ high prices are the result of a combination of factors, including operation expenses, brand loyalty, and business strategy.
These costs include their recently increased wages, restocking, and outlet maintenance, among many others. While those contribute to Starbucks’ expensiveness, they aren’t the only reasons, as Starbucks recorded a third-quarter net income increase of 25%.
The key factor contributing to Starbucks’ high prices are their value-based pricing approach and overall marketing strategy.
Before we dive into Starbucks’ pricing strategy, let’s look at Starbucks’ employment costs. Labor costs are some of the highest expenses of any business, especially in retailers that emphasize quality services.
For starters, Starbucks pays its employees fairly, provides ample training and professional development, and runs an extensive benefits program.
As a result, we can expect high-quality services and delicious drinks such as iced coffees, chai tea, and the discontinued Peach Green Tea Lemonade (to many fans’ disappointment). Other favorites include the infamous Pumpkin Spiced Latte and Iced Caramel Macchiato.
Naturally, Starbucks must train their baristas to handcraft drinks quickly and accurately, especially during rush hours.
Location and Layout
Starbucks has more than 14,000 outlets in the US, and each of these stores is strategically placed in high-traffic areas. As such, anyone rushing to work in the morning can conveniently grab a meal from Starbucks.
Starbucks also opens at urban centers and locations with affluent customers. The rental costs of these prime spots are also relatively higher, inevitably increasing Starbucks’ operating costs.
Aside from location, Starbucks also emphasizes its store layout and ambiance to stand out from the competition. The store design, furniture, and other amenities such as WiFi all contribute to Starbucks’ high prices.
You are also paying for Starbucks’ unique positioning as a place for people to feel at home rather than just a grab-and-go coffee shop. This is reflected in their mission statement: “To inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time.”
Starbucks has always been higher priced than its competitors – well before the coffee bean shortage and the COVID-19 pandemic. So clearly, there is another factor at play in Starbucks’ prices: their value-centric pricing strategy.
Value-based pricing refers to setting a price based on the customers’ conceived value of the product. In other words, Starbucks doesn’t price their products only to cover costs; their products are expensive to maximize profit margins while delivering superior value.
This value comes in the form of satisfactory service, cozy ambiance, and a shrewdly differentiated product offering from their competitors.
Put it this way – people are willing to buy Starbucks because it’s Starbucks. Sure, competitors such as Dunkin Donuts, Costa Coffee, and McCafe may sell coffee too, but it’s just not the same.
Another reason Starbucks is so expensive is its ethical sourcing of sustainable products. Starbucks has made it clear that they pay their farmers fairly and uphold programs to improve these farmers’ livelihoods.
One such initiative is the Coffee and Farmer Equity (C.A.F.E.) Practices launched all the way back in 2004. It is a program designed to provide support to farmers while promoting transparency in their supply chain.
Sure, your Cinnamon Roll Frappuccino may take more toll on your wallet, but you can rest assured that your money goes to supporting farmers and promoting ethical business.
Loyal Customer Base
Starbucks is one of the largest coffee retailers globally, with the US being the biggest customer base. To put things into perspective, Americans buy more than 4 million Starbucks coffee per day.
It’s not just sheer sales volume either; these customers are loyal to Starbucks and will do anything to get a hold of their holiday-exclusive drinks. Starbucks further encourages recurring customers with a Starbucks loyalty program that rewards points for every transaction.
All in all, Starbucks’ vast loyal customer base gives it much leeway to increase prices without worrying about a drop in sales.
Starbucks is more costly simply because it tastes much better than those at your usual convenience store. Starbucks also uses exceptional ingredients such as milk, syrups, and honey to enhance the flavor of its coffee.
Starbucks’ other products such as pastries and cakes are also popular choices because of their deliciousness. You pay for what you get at the end of the day, and spending more naturally means getting better-tasting food.
People have long complained about why Starbucks is so expensive without receiving a good enough answer. Starbucks’ prices are higher than its competitors because of better quality, value-based pricing, and operating costs.
Do you think that all these factors justify Starbucks’ expensiveness? Why and why not? Let us know in the comments below!