Starbucks Set to Increase Prices in All Stores, Once Again Increased costs due to inflation and the rise of the Omicron variant have affected the company.
By Emily Rella •
There might be some bad news for Starbucks regulars, and they can thank the seemingly never-ending supply chain issues for it.
Starbucks reported that it will be increasing prices in stores later this year thanks to less than stellar Q1 2022 results. Though total revenue topped estimates at about $8.05 billion, earnings did not meet Wall Street's expectations.
"Our pricing strategy … is driven by several factors such as inflation rates, partner investments, the infrastructure investments that we want to make, and then obviously, the investments we want to make on continuing the innovation pipeline. We do all those things while balancing the premium value for our customers and the experience we want to provide them," John Culver, group president of North America and COO of Starbucks said on its quarterly earnings call.
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Unfortunately, for the quarter that ended January 2, 2022, problems out of the company's control (namely higher costs caused by supply chain disruptions) mean that sacrifices will have to be made moving forward.
"As we saw inflation begin to increase in the middle of this past year, we made the decision to take pricing and we implemented pricing effective October 1. As inflation continued to grow, we saw that," Culver continued. "We needed to take additional action and we did so effective January 1. So we've taken two moves around pricing to help mitigate the challenges that we're seeing. Now we also have additional pricing actions that we have planned for the balance of the year that will additionally help offset the trends and some of the cost pressures that we're seeing."
The company also touched on freight and labor cost increases amid the supply chain disruptions and the rise of the Omicron variant, noting that costs (specifically transportation and distribution costs) "accelerated in December" and "intensified in January."
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"Prior to the emergence of the Omicron variant, we were experiencing some inflationary pressures and staffing issues resulting from the broader pandemic," said Kevin Johnson, president and CEO of Starbucks. "When the Omicron surge began, inflationary costs and staffing shortages were amplified, well in excess of our expectations. As I mentioned, three primary factors — high inflation, Covid-related pay and training and onboarding of new partners — impacted our profitability to approximately the same degree, even while customer demand remained strong."
The company maintains that as the Omicron surge lessens, costs related to its emergence will begin to dissipate as well and maintained that despite lower earnings related to increased costs across the board, customer demand remained strong and that the company is hopeful it will bounce back in the months ahead.
The chain previously hiked its prices in January 2022 and October 2021, coupled with menu shortages around the country that sent customers reeling.
Last October, the chain reported that it would increase all U.S. employees' pay to $15 per hour minimum and $23 per hour maximum by the end of this summer, depending on how long they've been employed.
Starbucks' stock was volatile early Wednesday but by mid-afternoon was down 4.23% year over year.
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