Starbucks Grande and Venti Price Increase... Tall Size Price Frozen
Operating Profit Margin Halved to Below 5% Due to COVID-19
Bean Prices Soar as Competition Intensifies, 'Adjustment' Card Played
Starbucks has adjusted its prices for the first time in 2 years and 6 months. Starting from the 2nd of next month, beverage prices will increase by up to 600 KRW depending on the size. As competition in the domestic coffee market intensifies, Starbucks has decided to keep the price of the Tall size, which accounts for more than 50% of sales, unchanged.
Starbucks Korea announced on the 31st that it will lower the price of all Short (237ml) size beverages by 300 KRW, while increasing the prices of Grande (473ml) and Venti (591ml) sizes by 300 KRW and 600 KRW respectively. The price of the Tall (355ml) size will remain frozen.
Lower Short, Keep Tall, Raise Grande and Venti... Starbucks Adjusts Prices by Size
The most sold size at Starbucks is the Tall. Although it fluctuates seasonally, the Tall size generally accounts for more than half of sales. Roughly, Short and Tall sizes make up 55-60%, while Grande and Venti sizes account for 40-45%.
A Starbucks representative explained, "Adjusting prices by size is the first in the industry including Starbucks. We aimed to minimize customer burden by freezing the price of the Tall size, which is the most sold size."
Venti Americano at 6,100 KRW... Java Chip Frappuccino Largest Size at 7,900 KRW
Accordingly, the price of the popular Cafe Americano in Grande size will rise from 5,000 KRW to 5,300 KRW. The Venti size price will also increase from 5,500 KRW to 6,100 KRW. Meanwhile, the Short size price will drop from 4,000 KRW to 3,700 KRW. The Tall size price remains at 4,500 KRW.
For Cafe Latte, the Grande size price will increase from 5,500 KRW to 5,800 KRW. The Venti size price will rise from 6,000 KRW to 6,600 KRW. Conversely, the Short size price will decrease from 4,500 KRW to 4,200 KRW. The Tall size price remains at 5,000 KRW.
The Java Chip Frappuccino price remains at 6,300 KRW for the Tall size, while the Grande size price increases from 6,800 KRW to 7,100 KRW. The Venti size price rises from 7,300 KRW to 7,900 KRW.
As International Coffee Bean Prices Soar... Starbucks Adjusts Prices After 2 Years and 6 Months
This is Starbucks' first price adjustment in 2 years and 6 months since January 2022. Compared to previous price increase cycles, this is a shorter interval. Starbucks last raised prices after 7 years and 6 months in July 2014.
The reason Starbucks decided to adjust prices is due to a sharp decline in operating profit margin. Starbucks Korea recorded its highest-ever sales of 2.9295 trillion KRW last year. However, the operating profit margin was 4.8%, about half compared to 8.5% in 2020 and 10.0% in 2021 during the COVID-19 pandemic. Although sales increased with more stores, costs such as labor and raw materials rose steeply.
In particular, major coffee-producing countries such as Brazil, Vietnam, and Indonesia have suffered from abnormal weather conditions like droughts and heatwaves, causing international coffee bean prices to skyrocket. According to the Korea Agro-Fisheries & Food Trade Corporation (aT) Food Industry Statistics Information, the Robusta coffee bean price based on the London International Financial Futures Exchange (LIFFE) was $4,266 per ton as of the 30th. It surged 41.7% just this year. Arabica coffee bean prices also rose 21.4% from the beginning of the year to $5,088 per ton based on the New York Board of Trade (NYBOT).
Because of this, Starbucks decided to adjust prices. However, considering the increasingly fierce competition in the coffee market, the Tall size price was frozen. This seems to be an effort to minimize consumer backlash from the price adjustment. According to aT, as of the end of 2022, there are nearly 99,000 coffee and beverage shops in Korea. The market size has more than doubled in four years, intensifying competition for customers among both premium and mid-to-low priced brands.
A Starbucks representative explained, "We have internally absorbed external price increase factors such as rising international coffee bean prices, high exchange rates, and labor costs, but as the burden has continued to accumulate, we decided to adjust prices for some products."
With the Leader's Move... Cafe Franchises Weigh 'Price Increases'
As Starbucks begins price adjustments, other cafe franchises are expected to consider raising prices as well. The low-priced coffee franchise The Venti already raised prices by 200 to 500 KRW for seven menu items including Cafe Latte in April.
Major premium franchises like Twosome Place and Hollys, as well as mid-to-low priced franchises such as Ediya, Compose, and Mega Coffee, currently state they have no plans to raise prices.
However, the situation has changed as market leader Starbucks has taken the price adjustment step. A cafe industry insider said, "Because price competition is fierce especially among low-priced coffee franchises, there has been a tendency to refrain from raising prices as much as possible. But now that Starbucks, the industry leader, has adjusted prices, other brands can consider price increases more actively." He added, "With Starbucks making complex calculations to adjust prices, other brands will face deeper dilemmas."
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