Starbucks gets away with expensive coffee in the morning - but it's losing out to cheaper competition in the afternoons
- Starbucks could be pricing itself out of the market, Bernstein warned clients on Tuesday.
- The firm says Starbucks coffee is priced about 38% higher than competitors, which is especially hurtful in the afternoon.
- With already high prices, Starbucks could struggle if the price of raw coffee beans increases.
- Follow Starbucks' stock price in real-time here.
When it's early, everyone needs their morning cup of joe. That's how Starbucks gets away with having coffee prices 38% higher than its competitors.
But new research from Bernstein shows the coffe giant could be losing out on afternoon sales as more alert consumers notice the higher prices.
"Compared to quick service restaurant competitors, Starbucks brewed coffee now sits at a ~38% price premium," Sara Senatore, the firms restaurant analyst, said in a note to clients Tuesday.
"Price sensitivity is low in the morning, but higher in the afternoon where SBUX is most under pressure. Although iced/refreshment is a greater driver in the afternoon, brewed coffee remains an important benchmark in our view."
With average customer ticket prices failing to keep up in-store traffic growth, the chain has been doing everything it can to entice you to order that bagel - or sous-vide egg bite - with your daily latté. Those add-ons can increase the average order total and help Starbucks' same-store sales numbers.
To make matters worse, the chain is vulnerable to an uptick in its supply costs.
Raw coffee is currently trading near all-time low prices, which has helped Starbuck's bottom line in recent quarters. But with the company already warning investors that its next earnings report will be weaker-than-expected, Bernstein worries any uptick in coffee bean prices could lead to trouble.
"Our experience is that consumers tend to be more receptive to price increases driven by commodities than by labor," Bernstein said. "With commodity coffee prices nearing all-time lows, Starbucks may struggle to pass through any future input price increases."
Shares of Starbucks have fallen 12.5% since the beginning of 2018 as the chain struggles to raise same-store sales, a closely watched metric as it nears full penetration in the United States. All eyes will be on those comparable numbers as well as international stores, especially in China, when the company reports earnings on July 26.
Bernstein's new price target for Starbucks is $58 - about 14% above where shares were trading Tuesday. Wall Street analysts polled by Bloomberg have an average target of $60.
