Starbucks Pricing Spineometer: 4 of 5 Vertebrae

Starbucks, a quick-serve coffee shop, had a positive FY 2023. Revenue rose 11.6% to $35.9 billion and earnings before interest and taxes rose 25.1% to $5.5 billion over the last year.

A review of Starbucks’ 2 November earnings call and financial report provided insight regarding the importance of pricing on performance.

Most of the conversation revolved around their Reinvention Plan, a three-pronged strategy to improve digital capabilities, brand position, and becoming truly global.

Yet, the importance of “strategic pricing” was mentioned by both Laxman Narasimhan, CEO, and Rachel Ruggeri, CFO of Starbucks at multiple moments.  And, repeatedly, when earnings were shared, the “favorable impacts of pricing” were mentioned, though not quantified. Hence, one can conclude that the importance of pricing is appreciated at the C-level of Starbucks.

Given Starbuck’s operations, we would expect between 70 and 350 professionals dedicated to pricing.  Their responsibilities would include price promotion management, contract pricing to channel partners, and loyalty program design.  Considering other issues such as the nature of their business, global reach, and industry dynamics, the pricing and revenue management team at Starbucks would appropriately be at the lower end of this range.

Research into the investment by Starbucks in pricing capability yielded encouraging results. The number of pricing professionals identified at Starbucks was near the lower end of industry benchmarks.  Pricing professionals ranged in title from manager to director.  Their responsibilities included data science, product portfolio pricing, loyalty, applied economics, and strategic pricing.  Most were based in North America.

Given the importance and capability of pricing at Starbucks as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of December 2023.

Starbucks Pricing Spineometer: 4 out of 5 Vertebrae.

SBUX (Starbucks Corp.) rose from 91.3 the day prior to their earnings call to 104.3 one week later. FY
2023 revenue of $$36.0 billion with a 15.2% operating margin and P/E ratio near 27.

For FY 2023, a 1% improvement in price would yield 6.6% improvement in operating profits holding all else constant at Starbucks.