Business & Technology Nexus

Dave Stephens on technology and business trends

Starbucks Soymilk Price Gouging Cover-Up

with 5 comments

My wife read my previous Starbucks post, smiled, paused, then asked me to write a smack-down for a B.S. email response she received on why they charge extra for soy milk.

Their justification was that soy milk costs more to Purchase, to Stock, and to Prepare. Don’t believe me? Here’s the email:

Now the only problem with their logic is Stocking and Preparation. Soy Milk is good for around 1,000 years (okay I’m exaggerating but it’s not perishable like cow’s milk). And last time I checked preparation is pretty much exactly the same (cow or soy) for your latte.

So Stocking costs less, not more, and Preparation is a wash. The question is how much more Soy Milk costs for Starbucks mega-corp to buy. For us individuals, the best pricing I could find is around $5.00 per gallon. For comparable milk, $3.50. Let’s say the Stocking costs are around 50 cents less per gallon for Soy. So there’s a net $1 additional cost per gallon, spread over approximately 40 servings per gallon, or 2.5 cents extra. Starbucks charges 40 cents, or almost 94% margin.

So how about some truth from Starbucks – “We charge extra for soy milk because we can. Its an option that healthy, more affluent people prefer.”

Its value-based pricing & has nothing to do with costs. Come clean about what you’re doing – and profit without a guilty corporate conscience. Don’t blame it on Procurement.

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Written by Dave Stephens

03/3/07 9:45 AM at 9:45 am

Posted in Opinion

5 Responses

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  1. nice ending to the story …”procurement”

    Manoj Ranaweera

    03/7/07 4:43 AM at 4:43 am

  2. Your argument clearly doesn’t hold water.

    For stocking, sure, unopened soy milk is fine on the shelf for many months, but after opened, it goes bad just like real milk. Even the most lightly trafficked Starbucks will go through gallons of milk every day, but not nearly as much soy milk, so there’s a much greater likelihood of soy milk going bad (and hence waste and higher cost).

    For production, while the steaming process is the same for soy milk and regular milk, there’s more to it than that. You know how the line in Starbucks gets long? (Can you sense the understatement?) It takes time to steam milk — that’s easily the single biggest bottleneck in making espresso drinks. With regular milk, they steam one big pitcher and can safely assume it will all get used, whereas keeping steamed soy milk hanging around will most likely be wasted, so it usually gets done on a one-off basis. This takes more time, and of course labor costs are the biggest expense in any food service company. It also increases the average wait time for customers, which reduces business.

    Finally, you judge the cost based on what you as an average consumer can buy. Starbucks is not an average consumer; much like Wal-Mart (or any other big corporation), they can negotiate for better prices on items they buy a lot. Starbucks buys a lot of milk, but not so much soy milk, so the cost differential is greater than you presume.

    I don’t mean to come off as rude, but a little knowledge and research would have told you all this; you obviously would prefer to spend your time whining than actually learning the facts. If you’re that concerned about your 40 cents, stop flocking to Starbucks with the rest of the sheep bleating “La-a-a-tte”.

    thomas102391

    07/15/07 10:48 AM at 10:48 am

  3. thomas, thank you for your time in authoring a rebuttal to my post.

    according to http://www.ochef.com/254.htm soy milk should be used within 5 days of opening, supporting your argument that soy does need some “care and feeding”. my wife uses soy at home & i will just say i’ve never seen a container go bad.

    i stand by my assertion that overall costs are less for serving soy vs. milk & that starbucks is pricing due to what the market will bear and enjoys large margins on this “soy tax”. i prefer not to think of my post as whining, though… :) it’s a simple request for starbucks to be honest and not come up with fake reasons for the surcharge. let’s just call a spaid a spaid…

    by your logic they should introduce different pricing schemes for non-fat, 2% and whole milk since each of these requires different containers and approaches.

    also, you certainly are correct that starbucks negotiates volume pricing – principally for coffee but for milk (soy or cow) as well – that pricing, while certainly not publically available regardless of the research effort, should be substantially lower than what an everyday consumer would find at a grocery store. and yes that will affect the margin calculation – but the net result will still be pretty sweet for Starbucks.

    Dave Stephens

    07/15/07 11:35 AM at 11:35 am

  4. Could Thomas be a Starbucks management employee or, maybe a Starbucks stock holder? Since these post were entered, the price difference between soy and cow milk has narrowed significantly.

    Dave is correct: Starbucks is gouging its customers. And the price of soy is now 0.50$!

    harrisonpocket

    02/11/10 12:44 PM at 12:44 pm

  5. I totally agree with you Dave, it is price gouging. I work next to a privately owned coffee shop and they not only serve soy milk, they also use lactaid milk, which for anyone who is lactose in tolerant like myself, you know is more expensive to purchase at the stores more so than not when compared to normal milk prices. They NEVER charge extra for either milk variation OR whip cream, yes that’s right, ever and they stay very busy. Hmm, makes you wonder why that is huh? I personally feel like it is a punishment for being healthy and it is not necessary, especially since there are other coffee shops that have proven successful without having to use this markup.

    ktufares

    04/2/10 9:45 AM at 9:45 am


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