Who knew? When businesses have to spend more on labor, they have to compensate for that expense somewhere else.
In the case of Starbucks, when they increased employee wages, they had to raise prices… the very next day. Talk about immediate consequences. MarketWatch reported:
Just a day after Starbucks Corp. unveiled a plan to raise wages in the U.S., the company said it has raised prices on many of its drinks.
Prices on select sizes of Starbucks brewed coffee have gone up by 10 to 20 cents starting Tuesday, and the price tags on espresso and tea latte drinks are up by 10 to 30 cents, according to a brief statement on the company website. The company expects the increases to raise the average customer ticket by about 1 percent, it said.
The New York Post had reported last week that Starbucks might raise beverage prices by as much as 30 cents soon, pointing out that the company had done so in July of each of the past two years.
On Monday, Starbucks said it would raise wages for all partners and store managers in the U.S. by at least 5 percent in October.
It’s a minor increase – but keep in mind, this was to compensate for a voluntary wage increase. The consequences would likely be greater had it been due to a forced wage hike due to a minimum wage increase. Not all businesses have the operating margin of a Starbucks – and many cannot afford to raise prices without losing customers. Starbucks is lucky to have the level of brand loyalty they do.
This just goes to prove there truly is no free lunch when it comes to raising wages. Unless those wages are rising due to increased productivity, someone has to pay for it.
[Note: This post was authored by Matt Palumbo. Follow him on Twitter @MattPalumbo12]