Starbucks Corporation (SBUX) Price Hike a Gain for Others

Starbucks Corporation (NASDAQ:SBUX) may have paved way for other small stores to gain market share in the industry after deciding to increase the prices of its commodities by 8%. It was only last month that the company increased its prices, something that should not go well with consumers amidst the slow growth in the economy. Joe’s Chief Financial Official, Caroline Barad, in an interview on Bloomberg, has said that the move by Starbucks to raise its prices will force them to squeeze their margins in order to retain customers.

“I think that it is a great opportunity for people who are standing in line to, kind of ,pick their heads up and say what else is out there and see us, many of our stores are right near Starbucks so to come over and try us, it is a good opportunity” said Barad.

The main problem at the moment for Starbucks Corporation (NASDAQ:SBUX) is the fact that smaller stores like Joe are closely watching their prices with a view of ensuring theirs are lower in a bid of attracting more customers. Starbucks has been forced to raise the prices for coffee as a result of a shortage of supplies, especially in Brazil with prices having soared by 46%.

Taking into consideration the way Starbucks Corporation (NASDAQ:SBUX) is big, it is able to source out supply long down the road to ensure they are not highly affected by the changes in supply chains. Starbucks is currently sourcing 18 months in advance with small stores being limited to less than 12 months

Smaller coffee joints are sprouting across the country essentially meaning increased competition for Starbucks at the current rate that it is increasing its prices. The other concern is that most of these small coffee joints, according to Barad are always more than willing to take home low margins as long as their prices are lower in the market compared to those of Starbucks Corporation (NASDAQ:SBUX).

“We raised our prices slightly in April, but we are constantly watching our margins tight-tight everything, you know the coffee market fluctuates every single day so to get that coffee at  a consistent price to the end buyer is always of constant challenge,” said Barad.

Disclosure: none