Starbucks cutting prices?: Starbucks captures the high-end market with it’s $5 lattes, but it is competing for the low-end market with price cuts to its bagged coffee in grocery stores. It also has lower prices in its cafés in India.
Starbucks’s aggressive growth strategy includes expanding into economies and cultures that won’t necessarily handle the café’s prices.
When Starbucks moved into India last fall, after Indian legislation opened the retail market to greater foreign investment, it realized the thrifty Indian nature could be a setback. So, Starbucks simply lowered its prices.
“A lot of people were truly surprised by our pricing strategy,” said Avani Saglani Davda, chief executive officer (CEO) of the Starbucks and Tata Coffee partnership in India, in an interview with the Seattle Times. In Beijing, China, a 12-ounce cappuccino costs $4.34; in Mumbai, it costs only $2.14, according to the Seattle Times.
Starbucks is not only trying to capture new foreign markets, but also to step up its sales of packaged goods.
As of May 10, Starbucks will cut the suggested retail price of its bagged coffee. The 12-ounce bags will cost $8.99, down from $9.99. The price cuts will not, however, affect the price of coffee in Starbucks cafés.
In February, the price of most Folgers and Dunkin' Donuts packaged coffee also decreased as commodity prices dropped.
Starbucks earned about $380 million from sales outside its cafés last quarter. The company makes about $2.55 profit per bag, according to Bloomberg Businessweek, meaning it is taking a 65 percent profit cut initially by selling bags for $1 less a piece.
Rita McGrath, a professor at Columbia Business School, told Bloomberg: “If you can run economically enough to make money at the lower price, you’re simply taking money out of your competitors’ pockets.”
In May, Starbucks will also set up a points system for loyal customers to get rewards for buying its bagged coffee.
The Associated Press contributed to this report.
