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It seems like Starbucks and a lot of other fast food chains are chasing short-term profits at the expense of long-term viability. A quick check shows Starbucks' gross profit has gone up 12% each year in the past 2 years - that's pretty significant for a stable business that isn't really changing much, and it doesn't seem sustainable. The profit of McDonald's is up 10%, 5%, and then 29% year-over-year, respectively, over the past 3 full years.
My question is - why? Isn't raising fast food prices so much to increase short-term profits an incredibly poor business decision? A major part of the appeal of fast food is low cost. If people fall out of the habit of going to McDonald's, Starbucks, etc. - which they will when they realize they can get higher-quality food/coffee/whatever at a local business for a lower cost - then I think it would be extremely difficult for these chains to win back their business.
Anecdotally, my family has significantly cut back on going out. We used to have a weekly habit of going out to eat with a family of four. We rarely go out now, and usually just as a couple. It's just too expensive.
In the long term, it might be a good thing. Part of the obesity epidemic in the US could be attributed to the fact of how cheap it was to get a meal at a fast food joint compared to just eating in. That differential has significantly increased, probably by at least a factor of 2x in the past few years.
Of course they always say places like McDonald's are really a real estate business disguised as a fast food joint. We'll see how well that holds up in this age of crumbling CRE values.
We're more and more doing this exact thing and you know what - that's a good thing. Happy to see you and your family has gone this way - very smart thing.
surely people who were stuffing their face at MCD are not going to switch to fresh cilantro and belpeppers and cooking every day. More like TV dinners and frozen hash browns. At any rate, slime mold had tons of links to how people are actually eating healthier and exercising more for many years now, but obesity is still trending up and even accelerating.
Gross Profit doesn't matter - it's Net that matters. There's more to a business like Starbucks than just COGS.
Their Net[1] doesn't paint as rosy of a picture as you described. While still a growing organization, the annual YoY growth isn't outrageous.
A smart business will also plan for upcoming expenses - like wage growth, downturn in markets (to sustain hard times), volatile goods cost, ever increasing rent/CRE, upcoming legislation, and more. That's along with all your normal business planning, such as expansion, new marketing endeavors, etc.
This theme... of trying to angle increased prices as pure corporate greed is very misguided.
[1] https://www.macrotrends.net/stocks/charts/SBUX/starbucks/net...
> Their Net[1] doesn't paint as rosy of a picture as you described.
Your "not a rosy picture" feels like a weird take on a steady 25% YOY (where not higher, see 2020's 300%) increase in profits (net, not gross). The one outlier was 2021, and ties in directly with the pandemic.
That's ridiculously solid growth that would make any accountant dance in joy, especially in the food service industry.
How do you think they can sustain growth in bad/volatile/uncertain economies? Raise prices...
Starbucks' NET is down from just two years ago (~2%). If we examine headcount over the past 5 years, you can also see incredible growth there (read: increased costs).
So, we pick a particularly unstellar year for Starbucks then lambast them for doing better the following year. We'd have to dig into their financials deeper to understand why 2022 was so poor in relation to 2021 and 2023... but the cited YoY Net Growth is not unreasonable for a company that has locations in nearly every nation, and access to enormous working capital.
...This isn't a bad economy. Nor volatile. Nor uncertain.
This is, for businesses, the best economy we've had for years. Why are they being forced to raise their prices again?
As for 25% not being unreasonable, it's about 10% higher than I'd expect to see in the food industry. 25%, especially for a company that basically requires physical locations, equipment, employees, managers, and food supplies (which expires and has a certain percentage of loss automatically) is absolutely phenomenal.
EDIT:
> Starbucks' NET is down from just two years ago (~2%)
No, it's up $100m 2023's $4.29B vs 2021's $4.19.
$4.125B in 2023 Net Income, $4.199B 2021 Net Income. Reread the linked source.
Additionally, you're playing fast and loose with the "growth" by comparing it to a previously down year. Again, we'd have to dig further to find out why Net Income was down so much in 2022, but essentially 2023 returned to just below 2021 levels. I would not call that spectacular growth by any means, especially when we consider the runaway inflation that has occurred in the meantime.
> No, it's up $100m 2023's $4.29B vs 2021's $4.19.
Is that adjusted for inflation?
Raising prices while everyone is might avoid any negative press. Plus you get to test how inelastic your demand / how price sensitive your consumers really are. Since most people buy coffee out of a habit to get their daily caffeine (and sugar) dosage I would reckon demand is pretty inelastic and management wanted to test that. You can always suddenly lower prices again for consumables like coffee - doesn't hurt your image long term. It's not like a luxury brand starting to lower their prices - which would be detrimental for their brand.
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Habits have momentum, and people aren't paying close attention to prices. They may not actually realize that the cost of fast food (FF) is now the cost of a sit down meal (SDM) at a full-service restaurant. So for a while FF feels cheaper than SDM even when it isn't, and FF chains can reap considerable benefits. They may retain the feeling of being affordable for many years after becoming not so. The same thing has happened with supermarket food prices: the cost of a steak at the supermarket now rivals the cost of an SDM, and all the trimmings and service. The price of an ordinary loaf of bread at places like Whole Foods is $8. But Trader Joe's prices and Costco prices have remained more-or-less constant.
The problem is there is no punishment for the people who do it. The board and higher ups get their short term profits that wall street love and when they eventually see that people stop coming the CEO will get a multi-million exit package and go and destroy his/her next business. In fact, they get rewarded for it.
Maximizing profit is the point of a business. If you want to have non-profit goals, you can advocate for socialization, I suppose, but government-run fast food restaurants seems like a tough sell in These Here United States.
Maximising profit over the well-being of a sustainable business long-term is a mindset from the late 80s/early 90s in business world, not a law. It doesn't need to be that way, it is because of an ideology instituted by Welch and his followers spread it amongst all businesses, another ideology will take over when this one inevitably crumbles enough business to be considered harmful.
I hope Boeing's downfall continues spiraling to have a nice poster child of what this fucked up behaviour creates.
I thought I was perfectly clear that they're maximizing short-term profits which in the end will result in less profit in the long run.
I guess it's because an inflationary environment is the best time to increase profit margins, because the average customer won't be able to tell the real increase when everything else gets more expensive as well. It is relatively harder to justify price changes when inflation is near zero.
I've been starting to get suspicious that we might see some real movement because of this. People will start being able to compete at these prices.
What can a local coffee shop give you for $8-20. Probably a better cup of coffee, or a full meal with coffee on the higher end. Better quality food made to order.
If I remember rightly, Starbucks' profits two years ago were down fairly substantially compared to their pre-pandemic levels and their long term goal seems to be to try and return the business to that same stable level of profit.
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Because they keep raising prices and people keep paying and their YoYs keep going up. So they'll keep doing it. It, unfortunately, works.
It works until it doesn’t.
I’m sure there are also more complexities, e.g. not sure how much control local franchise owners have over price.
As long as people keep buying they will keep doing this. There is no incentive for them not to.
I’m actually going to McD more than I have in the past. With mcd app, it’s really cheap when I’m on the move. Like $5 for a meal cheap.
You could also start exploring other healthier options such as making a sandwich or salad from home if you care what you put into your body. Mcd is emergency food for me, last time maybe 5 years ago on a highway.
However I shook off the habit of buying Starbucks coffee every morning, I just have one at home in the morning and just have some tea at work if I still want something…
I don’t go there everyday, just when I’m on the road and can’t get any other food. Especially on the highway.
I’m assuming your username doesn’t imply a McD in NYC, because in my metro area “value” meals are all over $10 in the app. I’m fairly certain as late as 2021 I could get a sausage biscuit, hash brown, and coffee for $3, that’s now $7.
Do you use the app? I can get a Double Cheeseburger and 6 nuggets for $4.12. I don’t drink soda, but I have $1 a drink deal as well.
I do. With the app and a deal that still >$5, which isn’t bad, but no fries!!
https://fred.stlouisfed.org/series/APU0000709112
Price of a gallon of milk over time
You should really use a basket of goods, there are a lot of reasons why a single commodity may change in price. This is kind of why we have CPI and PCE.
Here's real-dollar food PCE. It's up about 38% since 2007 or just over 2% annualized increase above inflation.
It may just be me, but I don’t think in terms of “real-dollars” (which are in fact fictional). The non-inflation adjusted graph[0] showing around 30% increase in the last 4 years matches my grocery bills more closely.
Previously on HN[0] I broke down a grocery bill and found we were paying >40% more from 2021-2023.
Were your wages flat over the same time period? It's all a treadmill and you have to keep running.
Real dollars aren't fictional lol, you can use the term constant-dollars if you prefer. The index is priced in 2017 dollars. Dollars each year are a new vintage, basically. A dollar last year is not the same as a dollar today, and comparing in real/constant dollars adjusts for that.
Inflation from 2007-2024 was 49% so... that checks out. A 2% real-dollar annualized increase would actually be more than that.
I'm not sure what your point is, those two series are equivalent.
I guess you could normalize by something else like median wage but you're going to like that even less...
Absolutely fictional. They are a tool to do comparisons disregarding inflation - that has value - but the dollar in my wallet last year is a dollar today. It can’t buy as much, but that’s what everyone who isn’t an economist considers a dollar.
They're a tool specifically for incorporating inflation.
Dollars don't live in wallets for years on end. They live in markets. They live productively in bank accounts and in investment vehicles. And generally you're buying food out of your paycheck, which is also going up over time. Look at median wage. [1]
They myth of the idle dollar needs to die.
The question isn't how much your one dollar sitting in your wallet can buy (that's separately answered in CPI) the question is how much of your take-home pay as a percentage do you have to spend on food. That's what this series offers, in both nominal, and real dollars. The point is to compare the change in burden over time for the median individual. Comparing nominal prices isn't interesting and plays to humans poor ability to deal with exponential series.
People can quite literally keep a bill in their wallet for multiple years. Do you not believe this?
What fraction of money do you think exists in this state?
More than zero…?
Ok, but is the amount relevant?
I consider it relevant enough to comment about it…
Whether or not any of these comments in this chain have any relevance to the economic debate I have no opinion on.
Seems more reasonable to use milk when talking about Starbucks.
I would probably use coffee... or at least a blend of their inputs based on quarterly filings or something.
Anyone who's worked at Starbucks can tell you that milk is 90%+ of the commodity being consumed. The back area of every store is just a massive cooler to store milk jugs. The beans themselves are almost a foot note in comparison.
The variation on the prices of ingredients has to be almost negligible for those drinks.
Even in a huge cup you have at most $0.40 worth of milk and $0.30 of coffee beans (and that's generous, you could get specialty beans at that price).
the linked reddit specifies soy milk
A quick google shows that Starbucks actually has raised prices the _least_ of major fast food chains over the past 10 years. (if you trust [1])
Looks like they're just trying to catch up. Bad timing.
Considering most fast food places are comparable in price to local restaurants with table service, I’m not surprised. A pretty disproportionate amount of value is being extracted rather than added by these franchises.
I usually visit when I'm at an airport, so like twice a year. Every time I go, the experience gets worse. Last month I realized I paid like 12 dollars for two flat whites with a really painful to opt out tip system.
On top of that I realized they got rid of the milk and sugar and I now have to beg the barista. That was the last straw.
> That was the last straw.
Oh now you want a straw?
No, that was the last straw. There's no more.
Supply and demand dictates buy buy buy. Straws are going to the moon!!!
Not saying Starbucks is the best in the world, but airport and co-located stores (e.g. inside a Target, grocery store, or hotel) are absolutely the worst versions of Starbucks. They’re more like a cut down version that sometimes uses instant coffee, has a limited menu, or are just constrained by the difficulty of operating in an airport.
Don’t base your opinion of them based on what you’re getting in an airport.
P.S. Most airport versions of a restaurant are typically the worst versions.
The Starbucks I've been too in the last two years (NE Ohio, Massachusetts) have all been like that. Creamer and sweeteners are behind the counter now. Seating is harsh and uncomfortable. The floors are dirty now. The whole experience is hostile.
I have been eating out and spending a lot of money lately, but then I read somewhere that $28 per day is 10k per year.
So I started a budget and Starbucks was one of the first things I cut
From time to time, I'm just too damn lazy to get up and cook, so app delivery it is. Or I have food, but forget to thaw something, so it won't be ready to cook in time, so app delivery it is.
I know there's a "you so lazy" tax. I've heard that on top of tips, delivery fees, app fees, they even modify the prices. Today, I went to one of the places I like to order from in person (such a rare thing for me to do). While there, I used app delivery to view their prices to the actual menu in front of me. Every single plate was at least $3 more expensive on the app. I deleted the app then and there.
Of course! The delivery apps take 30% as well as delivery and service fees and most restaurants aren’t prepared to eat that loss or margin. It’s especially obviously for items that have fairly standard costs (like a Kebab in Australia is about au$12 everywhere) but in the app they’re $17, plus fees.
Yeah Starbucks would be at least 10% if that. At $5 a day, 5 days a week, you get ~260 days * $5 = ~$1300.
And if your chosen drink from Starbucks is more expensive, and you order more than once a day, then double or even triple that figure.
The party pack of twelve soft tacos at Taco Bell costs $30 if you want sour cream. It costs just as much to add a few dollups of sour cream to the tacos as it is to by a bulk tub of tub of sour cream at one of the warehouse stores.
That's... the idea of restaurants, right? You can get all the ingredients in bulk yourself and save on the labour costs by making it yourself.
This reminds me of a hilariously unaware post on reddit a couple of years ago. A guy found a "hack" to Whole Foods sandwiches to get them cheaper... by walking around the store, getting the ingredients to the sandwich, buying them and making the sandwich himself.
Some people are so domesticated by advertising it just doesn't occur to them to do things themselves.
But the CPI tells us that inflation is at 3%, so this can't be true!
The Fed said they were only looking at core inflation, which excludes housing, energy, and food. Companies immediately started soaking consumers for those.
You’re implying causation, but doesn’t the fed always look at core inflation?
Well they don’t like the rest for short-term trends because they are more volatile. But I think they would be important even if you could only use them for longer timescales.
That's like the most important part in our lives.
You know, the things every citizen can do without!
Both _can_ be true. They may be price gouging.
Price gouging is not a real thing unless the business has a monopoly.
That and Saturn and Uranus align on 30th December.
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I mean, sure, this would annoy me to, but I don't understand the "Shame on you Starbucks" ending. Starbucks is the epitome of an optional luxury with a million possible replacements. As the commenter said, "I am slowly turning to my Nespresso machine to make my drink now", which is exactly what should happen. Starbucks will raise their price until the point that people no longer think it's worth it.
I wrote about this in a related comment recently, https://news.ycombinator.com/item?id=39889890. There are many "nice, but not extravagantly fancy" restaurants that I would go to when it was about ~$60 per person. Some of these same places are now $100 and above per person, and at that price I won't go.
I see this so much these days. I totally get being upset about rents, utilities, and supermarket food. But Starbucks and such are entirely unnecessary, there are no ethics or shame involved here. If it’s not worth the price, don’t buy it. You don’t have to buy it.
> Starbucks will raise their price until the point that people no longer think it's worth it.
You not it's not too expensive when people are still buying it. If it were truly too expensive, nobody would buy it. I can't remember where I first heard that, but I do remember having a hyperbole comment after that that was followed with, "just because you can't afford it doesn't make it too expensive. it just means you can't, not that others can't". sometimes, you just want to throttle pedants
It's probably better for society for people to frequent third-places more. More sociability, connections - the human touch. It's of course just selling overpriced sugar drinks, but there's also this aspect.
You know what they say about a frog and a pot of boiling water.
Some people clearly don't care about the price. I saw a food delivery person delivering a single drink from starbucks to someone in my apartment complex.
I have discovered a brilliant way to fight inflation. If something is too expensive don’t buy it. This works surprisingly quickly. The best way to communicate with a business is to stop buying stuff from them.
Businesses quickly learn that raising the price comes at a cost. This doesn’t work for required things, but it is important to buy required things on your own schedule.
This only works if everyone does it.
Obviously most people don't seem to care for those price hikes at Starbucks. You can make sure they studied the profit/loss on that move.
I've been making my own cappuccino's for the past decades and always laugh at the prices I see the rare times I take one while out. Buying my expensive machine has practically been an investment at this point... lol
It's clear that going out for anything in the past years has become not only a luxury but a head scratcher most times.
Invest in your setup and skills - not only will you save in the long run - you will learn things and have fun doing it.
Just for fun, here are my numbers rounding things up for fun with current prices... Milk 5$ for 2 litres, decent coffee usually around 20$ for 350 grams, water filters 100$ a year, machine 5k good for at least 20000 shots (based on my last one that lasted more than a decade).
The price of my cappuccino comes to around 2$ cad.
This is of course based on low volume and little over head. Of course if I would add utilities and space it would be higher such a businesses do - but it's a decent reference based on more than 20 years of doing it.
Interesting timing. The Europe side internal coffee shop at my work is also Starbucks except company run and raised prices a lot today too.
Nice to hear Starbucks is incentivizing people to participate more in the Boycott, Divestment, and Sanctions campaign, and encouraging drinking better coffee at the same time.
If you're not a brick you probably shouldn't be going into a Starbucks.
$3.75 - triple shots with soymilk
$1.45 - cold foam
$0.80 - syrup
Why, though?
Cold foam inflation rate is out of control!
Why what? Nothing in this world is free.
$1.45 - cold foam << That foam isn't going to make itself, so you have to charge to pay the employee making it. The equipment that makes it doesn't run on wishes, so you gotta charge for the electricity to run the equipment. The equipment doesn't clean itself, so you have to help pay for the cleaning fee since it was dirtied at your request.
$0.80 - syrup << Just like anything thing like beer/shots/etc. Things cost money when you buy in a retail with mark up. It's not rocket science. Ever paid for a shot? Of course you can buy a bottle for the same price as a round of shots for you and your mates.
As a side note, in all of those movies where someone is at the bar and then tells the bartender to "leave the bottle". Like, is that something you can actually do, and if so, what's the tab on that going to run? Of course, you're not supposed to think about the movie like that. I just can't help it.
Modern machines, especially those that Starbucks uses, effectively does make foam (and the shots) with no intervention by the baristas save refilling the milk.
Yes, there's a cost to the machine, but latte prices are completely divorced from their costs.
Why what?
Why would you drink this?
that's an entirely different discussion. i can't stand drinking coffee. it tastes like someone took a bean, roasted it, soaked it in hot water, then strained it through a filter. nothing I just said even remotely sounds enticing.
now, grind those beans up and sprinkle on some tiramisu, and I'm all about it.
The Starbucks near me is only $0.65 cheaper than a pour-over[0] at my local specialty coffee store, which has (IMO) better coffee, better variety, and my patronage supports a small local business instead of a multinational behemoth.
I'm not saying no one should ever go to Starbucks, but it does bum me out that so many people I know will only go there.
[0] Yeah, a pour-over takes longer than getting a cup from the pot they already have going. Most specialty shops I've been to also sell drip coffee. I just mention pour-over to show that you can get an excellent cup for only a bit more than what you pay at Starbucks.
At least here in Canada: Starbucks has obvious, measurably worse coffee than most other chains.
Just order a black espresso to see. Starbucks is banking on the fact that most people order drinks, and the quality of the coffee is indiscernible among the milk and sugars.
At this point, Starbucks has worse coffee than McDonald's and is only a step above Tim Hortons (which itself is on par with truck stop coffee).
I wonder if there is a database of Starbucks prices over time around the world?
It's been a long time since I've visited Starbucks
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Starbucks is the only chain where I've never been served a bad or stale cup of coffee. The value of a guaranteed good cup of coffee to a white-collar professional making $80/hour is much higher than Starbucks' price. I'd be willing to pay at least $5. They just have to boil the frog to deal with price expectations.
> Starbucks is the only chain where I've never been served a bad or stale cup of coffee.
To each their own I suppose. They are rather consistent, I'll give them that.
You can also ask for a remake with no questions asked.
To me, their coffee is consistently bad, so I have to assume that what I got is the way they wanted to make it. A remake will not change things.
Until writing my comment, I never realized people thought Starbucks coffee is bad.
Where can one get good coffee? I want to try!
Hasn't been my experience, also the damn cups are almost guaranteed to get coffee on someone.. the place is over priced garbo
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