For some reason, Starbucks Corp. (NASDAQ: SBUX) has slashed prices on some coffee and coffee products between April 1 to April 7. The coffee shop chain did not give any reason for the decision.
One possible explanation is the breakfast wars going on between McDonald’s Corp. (NYSE: MCD) and Taco Bell. McDonald’s has resorted to giving away fresh brewed coffee during the day.
Among the Starbucks products discounted by 25% are coffee, accessories such as cups and related products such as syrups.
Some of the deeply discounted types of coffee are Via Iced Coffee, which has been discounted to $5.95, Pike’s Peak coffee machine pods, which have dropped to $11.95, and Columbia Verismo pods, which have been slashed to $12.85.
Among coffee additives, the price of Starbucks Vanilla Syrup has been cut to $12.95, and Fontana Carmel Sauce has been priced down to $21.95.
Prices for accessories include 25% discounts on 24-oz. Cold Cups to $12.95 and 16-oz. recyclable cups to $9.95
The decision comes at a time when coffee prices have reached near all-time highs, which presses the margins at Starbucks. The effect on its competition is, for the most part, less severe because of the volume of other drinks and fast-food they serve. However, large their coffee sales are, they represent a small portion of total revenue of these rivals.
Concerns about Starbucks profits have not been lost on investors. The company’s share price has dropped 7% this year to $73, while the broader markets are up slightly.
The McDonald’s free coffee promotion will end in mid-April, just after the Starbucks product sales. Whether there is more discounting in the industry in late April well tell whether the coffee price wars have become more vicious and long term.
Starbucks CEO and founder Howard Schultz aims to get the company’s market cap to $100 billion. Pricing pressure and large discounts could derail that.
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