Starbucks Plans Another Price Hike, Citing Inflation and Higher Operating Costs

It's the third price hike since October 2021

A Starbucks Sign
Adam Glanzman/Bloomberg via Getty Images

Starbucks is planning to raise prices on products in 2022, citing rising inflating and a "rapid increase" in supply chain and labor costs, Starbucks president and CEO Kevin Johnson said Tuesday during an earnings call with investors.

The Seattle-based coffee chain has already hiked prices twice in the last four months, having raised prices in October and last month.

“Although demand was strong, this pandemic has not been linear and the macro environment remains dynamic as we experienced higher-than-expected inflationary pressures, increased costs due to Omicron, and a tight labor market,” Johnson said.

Because of the continuing disruptions, the company is planning even more price hikes this year, Johnson added. Starbucks did not say how much it planned to increase prices.

The announcement drew outrage from consumer advocacy groups who noted that Johnson saw his own compensation soar by nearly 40% to $20.4 million in 2021. And while Starbucks did not meet its projected fourth quarter goals, the company still reported a profit increase of 31%.

Starbucks is giving workers a raise, as restaurants nationwide are struggling to find enough people to serve customers.

Spending on employee benefits to address labor market conditions added to the company's "extraordinary cost pressure," Johnson said. Starbucks increased COVID-19 pay for workers, which includes paid time off for employees who get sick and paying workers to get vaccinated against the coronavirus. As the highly contagious omicron variant spread across the U.S. and the world, "the company saw more partners leverage isolation pay benefits as they were either home sick or home isolating after being exposed to the virus."

Last month, Starbucks announced some stores would cut operating hours due to staffing shortages amid a surge of omicron infections. On Tuesday, Johnson said the company hired more employees last quarter than anticipated, resulting in increases in training costs.

“This investment is critical to the success of our business as we work to create a great Starbucks experience where partners feel supported, and customers feel uplifted,” Johnson said.

In addition to higher prices, Starbucks also plans to scale back on marketing and promotional spending.

Despite the price hikes, Starbucks' consumer demand remains strong as sales jumped 18% sales in North America and 13% globally during the holiday quarter ending Jan. 2.

But Starbucks isn't alone. Fast-food restaurant chains raised prices 7.1% in 2021, according to data from the U.S. Bureau of Labor Statistics.

It's not just large corporations that have had to adapt to inflation. Small businesses across the country also have been struggling with higher operating costs due to supply chain issues that have forced many to find more expensive alternatives and pass the increases on to their customers.

Contact Us