Starbucks Faces Pricing Pressure as Consumer Perception Weighs on Sales
Recent data from JPMorgan reveals a persistent pricing challenge for Starbucks, with its coffee prices remaining significantly higher than competitors in major markets.
In New York City, Dunkin' Donuts' drip coffee and iced lattes are priced 10% and 21% lower, respectively, than Starbucks. Similarly, Dutch Bros. and Scooter's Coffee in Kansas City and Dallas offer iced lattes and drip coffee 13% and 32% cheaper, respectively.
Analyst John Ivankoe believes Starbucks could maintain its premium pricing due to its enhanced in-store experience, including free refills and ceramic mugs. However, recent earnings results indicate a need to address the pricing conundrum.
Starbucks' recent quarter showed a 4% decline in global same-store sales, with North America and US sales dropping by the same margin. International sales also faced challenges, with China experiencing a 6% year-over-year decline.
CEO Brian Niccol aims to improve consumer perception of Starbucks' pricing by refining the mobile order and pay process and investing in marketing and staff. While the company has not provided guidance for the current fiscal year, Niccol remains confident in the turnaround strategy.
Analysts believe that Starbucks' recent pricing decisions, such as eliminating non-dairy milk surcharges and reducing promotional transactions, will help maintain the brand's premium positioning while improving value perception. Additionally, planned revisions to the pricing strategy for customization options like cold foams and syrup pumps could further enhance customer sentiment.