Starbucks Hikes Prices but will it Help Shareholders?

Starbucks (SBUX)

Starbucks Corp. (NASDAQ:SBUX) shares have managed to get back to just under $20 a share and the company plans on keeping it that way.  Charging another Quarter (25 Cents) or so on the "higher priced drinks" will be tolerated by the public, but what if it backfires?  Now that SBUX has got its market share under control, they should focus on keeping it that way, not giving customers another reason to just head to McDonalds (NYSE:MCD) or drink Classic Folgers for 10 Cents a cup.

Great for Starbucks, steal from the rich (adding on 5 to 30 Cents for the more complicated drinks) and give to the poor (simpler drinks costing 5 to 15 Cents less), the company is the modern day Robin Hood for coffee addicts.  But its not coffee addicts this will appeal to, it's only for existing Starbucks customers.  Starbucks said the pricing may not be consistent from store to store, depending on whether an outlet is company operated or a licensed store. There also may be variations between markets.

Store employees have been advised in memos to "expect customers to be sensitive to pricing changes in this economic climate," the WSJ reported. Starbucks Corp. told news outlets this is the first time Starbucks has lowered prices for its products. Starbucks' last chain-wide price hike was in 2007. 

Does the company who just reported a 5% decline in same-store sales this past quarter really think this is going to bring in more revenue?  It would be one thing if you increased prices on all drinks but give or take a dime here and there -- how much is that really going to help the bottom line? 

Starbucks you got rid of close to 12,000 employees since the Recession has arrived, you've closed countless stores and delayed even more from opening -- take a breather.  SBUX shares have managed to increase 108% in 2009 an amazing feat for a company who's product line is a luxury item during a time when most Americans are struggling to get by. 

Don't change anything corporate, just enjoy your ride back up to the top.

Doug McIntyre from 24WallSt.comsaid it best today:
Starbucks’ earnings improved in the last quarter, but its same-store sales were still not healthy. Customers are not returning to its shops fast enough to move the firm back to a period of rapid sales. Consumers may have made a permanent decision that expensive drinks are a luxury. As the recovery takes place, that theory will be tested.

Starbucks is clearly not willing to gamble that spending on discretionary items like premium coffee will turn higher any time soon. If its lower prices don’t work, it may have to start a “cash for coffee” program that will allow people to bring in old grinds and get a new drink in return.

Starbucks shares didn't move much on today's pricing news, but long-term this is the type of deal that could start to take away value from SBUX shareholders.  Wall Street and the analysts don't need much to suddenly say 'your shares are over-priced', reduce a guidance or slash a price target.  When companies decide to reduce and raise prices at the same time, they should also announce and forecast how much they believe it will improve the bottom line.  If you have enjoyed a great ride back up to almost $20 a share, its time to think about taking some off the table before the coffee spills.

Starbucks Corp. $ 19.71
SBUX 0.49

% From 52-Wk High ($ 19.69 ) 0.10 %
% From 52-Wk Low ($ 7.06 ) 64.18 %
% From 200-Day MA ($ 13.28 ) 32.62 %
% From 50-Day MA ($ 16.63 ) 15.63 %
Price % Change (52-Week) 21.90 %

Disclaimer: No positions in SBUX.

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