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Comment by tomdell | Hacker News Reader

It seems like Starbucks and a lot of other fast food chains are chasing short-term profits at the expense of long-term viability. A quick check shows Starbucks' gross profit has gone up 12% each year in the past 2 years - that's pretty significant for a stable business that isn't really changing much, and it doesn't seem sustainable. The profit of McDonald's is up 10%, 5%, and then 29% year-over-year, respectively, over the past 3 full years.

My question is - why? Isn't raising fast food prices so much to increase short-term profits an incredibly poor business decision? A major part of the appeal of fast food is low cost. If people fall out of the habit of going to McDonald's, Starbucks, etc. - which they will when they realize they can get higher-quality food/coffee/whatever at a local business for a lower cost - then I think it would be extremely difficult for these chains to win back their business.

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Anecdotally, my family has significantly cut back on going out. We used to have a weekly habit of going out to eat with a family of four. We rarely go out now, and usually just as a couple. It's just too expensive.

In the long term, it might be a good thing. Part of the obesity epidemic in the US could be attributed to the fact of how cheap it was to get a meal at a fast food joint compared to just eating in. That differential has significantly increased, probably by at least a factor of 2x in the past few years.

Of course they always say places like McDonald's are really a real estate business disguised as a fast food joint. We'll see how well that holds up in this age of crumbling CRE values.

surely people who were stuffing their face at MCD are not going to switch to fresh cilantro and belpeppers and cooking every day. More like TV dinners and frozen hash browns. At any rate, slime mold had tons of links to how people are actually eating healthier and exercising more for many years now, but obesity is still trending up and even accelerating.

We're more and more doing this exact thing and you know what - that's a good thing. Happy to see you and your family has gone this way - very smart thing.

Gross Profit doesn't matter - it's Net that matters. There's more to a business like Starbucks than just COGS.

Their Net[1] doesn't paint as rosy of a picture as you described. While still a growing organization, the annual YoY growth isn't outrageous.

A smart business will also plan for upcoming expenses - like wage growth, downturn in markets (to sustain hard times), volatile goods cost, ever increasing rent/CRE, upcoming legislation, and more. That's along with all your normal business planning, such as expansion, new marketing endeavors, etc.

This theme... of trying to angle increased prices as pure corporate greed is very misguided.

[1] https://www.macrotrends.net/stocks/charts/SBUX/starbucks/net...

> Their Net[1] doesn't paint as rosy of a picture as you described.

Your "not a rosy picture" feels like a weird take on a steady 25% YOY (where not higher, see 2020's 300%) increase in profits (net, not gross). The one outlier was 2021, and ties in directly with the pandemic.

That's ridiculously solid growth that would make any accountant dance in joy, especially in the food service industry.

How do you think they can sustain growth in bad/volatile/uncertain economies? Raise prices...

Starbucks' NET is down from just two years ago (~2%). If we examine headcount over the past 5 years, you can also see incredible growth there (read: increased costs).

So, we pick a particularly unstellar year for Starbucks then lambast them for doing better the following year. We'd have to dig into their financials deeper to understand why 2022 was so poor in relation to 2021 and 2023... but the cited YoY Net Growth is not unreasonable for a company that has locations in nearly every nation, and access to enormous working capital.

...This isn't a bad economy. Nor volatile. Nor uncertain.

This is, for businesses, the best economy we've had for years. Why are they being forced to raise their prices again?

As for 25% not being unreasonable, it's about 10% higher than I'd expect to see in the food industry. 25%, especially for a company that basically requires physical locations, equipment, employees, managers, and food supplies (which expires and has a certain percentage of loss automatically) is absolutely phenomenal.

EDIT:

> Starbucks' NET is down from just two years ago (~2%)

No, it's up $100m 2023's $4.29B vs 2021's $4.19.

> No, it's up $100m 2023's $4.29B vs 2021's $4.19.

Is that adjusted for inflation?

$4.125B in 2023 Net Income, $4.199B 2021 Net Income. Reread the linked source.

Additionally, you're playing fast and loose with the "growth" by comparing it to a previously down year. Again, we'd have to dig further to find out why Net Income was down so much in 2022, but essentially 2023 returned to just below 2021 levels. I would not call that spectacular growth by any means, especially when we consider the runaway inflation that has occurred in the meantime.

Raising prices while everyone is might avoid any negative press. Plus you get to test how inelastic your demand / how price sensitive your consumers really are. Since most people buy coffee out of a habit to get their daily caffeine (and sugar) dosage I would reckon demand is pretty inelastic and management wanted to test that. You can always suddenly lower prices again for consumables like coffee - doesn't hurt your image long term. It's not like a luxury brand starting to lower their prices - which would be detrimental for their brand.

Habits have momentum, and people aren't paying close attention to prices. They may not actually realize that the cost of fast food (FF) is now the cost of a sit down meal (SDM) at a full-service restaurant. So for a while FF feels cheaper than SDM even when it isn't, and FF chains can reap considerable benefits. They may retain the feeling of being affordable for many years after becoming not so. The same thing has happened with supermarket food prices: the cost of a steak at the supermarket now rivals the cost of an SDM, and all the trimmings and service. The price of an ordinary loaf of bread at places like Whole Foods is $8. But Trader Joe's prices and Costco prices have remained more-or-less constant.

The problem is there is no punishment for the people who do it. The board and higher ups get their short term profits that wall street love and when they eventually see that people stop coming the CEO will get a multi-million exit package and go and destroy his/her next business. In fact, they get rewarded for it.

Maximizing profit is the point of a business. If you want to have non-profit goals, you can advocate for socialization, I suppose, but government-run fast food restaurants seems like a tough sell in These Here United States.

Maximising profit over the well-being of a sustainable business long-term is a mindset from the late 80s/early 90s in business world, not a law. It doesn't need to be that way, it is because of an ideology instituted by Welch and his followers spread it amongst all businesses, another ideology will take over when this one inevitably crumbles enough business to be considered harmful.

I hope Boeing's downfall continues spiraling to have a nice poster child of what this fucked up behaviour creates.

I thought I was perfectly clear that they're maximizing short-term profits which in the end will result in less profit in the long run.

I guess it's because an inflationary environment is the best time to increase profit margins, because the average customer won't be able to tell the real increase when everything else gets more expensive as well. It is relatively harder to justify price changes when inflation is near zero.

I've been starting to get suspicious that we might see some real movement because of this. People will start being able to compete at these prices.

What can a local coffee shop give you for $8-20. Probably a better cup of coffee, or a full meal with coffee on the higher end. Better quality food made to order.

If I remember rightly, Starbucks' profits two years ago were down fairly substantially compared to their pre-pandemic levels and their long term goal seems to be to try and return the business to that same stable level of profit.

Because they keep raising prices and people keep paying and their YoYs keep going up. So they'll keep doing it. It, unfortunately, works.

It works until it doesn’t.

I’m sure there are also more complexities, e.g. not sure how much control local franchise owners have over price.

As long as people keep buying they will keep doing this. There is no incentive for them not to.

I’m actually going to McD more than I have in the past. With mcd app, it’s really cheap when I’m on the move. Like $5 for a meal cheap.

I’m assuming your username doesn’t imply a McD in NYC, because in my metro area “value” meals are all over $10 in the app. I’m fairly certain as late as 2021 I could get a sausage biscuit, hash brown, and coffee for $3, that’s now $7.

Do you use the app? I can get a Double Cheeseburger and 6 nuggets for $4.12. I don’t drink soda, but I have $1 a drink deal as well.

I do. With the app and a deal that still >$5, which isn’t bad, but no fries!!

You could also start exploring other healthier options such as making a sandwich or salad from home if you care what you put into your body. Mcd is emergency food for me, last time maybe 5 years ago on a highway.

However I shook off the habit of buying Starbucks coffee every morning, I just have one at home in the morning and just have some tea at work if I still want something…

I don’t go there everyday, just when I’m on the road and can’t get any other food. Especially on the highway.

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