'We have to be worth paying for'

‘We have to be worth paying for’

Higher prices aren’t stopping Starbucks’ fans. Despite record inflation, the coffee giant saw US sales jump by 11% in the fourth quarter, driven primarily by a 10% increase in average ticket size and a 1% increase in comparable transactions.

CFO Rachel Ruggeri told Yahoo Finance the company is “encouraged” by customer loyalty and ongoing demand, noting that price hikes made this year were “really in response to inflationary pressures.” The company raised prices by about 5% over a 12-month period.

When asked if customers can expect another price hike, Ruggeri responded, “We’ll have some of that this year, based on annualization from moves we made last year, but we expect our pricing to return to actions that are more on a historical level .”

She said the Seattle-based company is now focused on how to sustain increased volume per ticket — meaning when a customer decides to add on a pumpkin & pepita loaf or reindeer cake pop to their order.

“What we focus on is really, how do we sustain that ticket, because it isn’t just pricing, it’s actually volume as well, we’ve seen our customers purchase more … so we’re seeing increased volume,” Ruggeri shared.

Low-angle view of drink order and mobile order pickup area at Starbucks coffee with baristas visible working behind a counter, Alameda, California, October 16, 2021. Photo courtesy Sftm. (Photo by Gado/Getty Images)

Ruggeri acknowledged that in order to keep the momentum going, the global coffee brand needs to ensure it offers food and drinks that provide “a competitive advantage,” adding that there is a need to “give customers a reason to come for in something that they maybe can’t make at home, and so we continue to innovate in those areas.”

For example, Starbucks is betting big on customized drinks, with add-ons like syrups, cold foam, and sweeteners, which also drive up the cost per transaction. Per the company’s earnings call, 60% of beverages are now customized and modifiers have grown in double digits.

“That’s why the reinvention plan in the US is so important, because it’s really about ensuring that we can … create a great experience that, in my opinion, is worth paying for. As long as we can continue to do that you get the very best coffee and you get the very best service … That’s going to be what gives us a competitive advantage as we move forward,” Ruggeri said.

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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