Starbucks hides small sizes

Critics think the move aims to encourage drive-through coffee drinkers to get a larger, more expensive cup.

By InvestorPlace Sep 8, 2010 12:32PM
Credit: (© Michael Conroy/AP)
Caption: Customer in a Starbucks storeBy Burke Speaker, InvestorPlace

In a move that critics see as a greedy menu change to boost profits, Starbucks (SBUX) has erased the "tall" (small) coffee option from its drive-through menu. Defenders claim the switch is simply a way to reduce order confusion.

 

The "tall" remains on in-store menus and, yes, you can still order a drive-through "tall" if you request it. But across the nation, that size has all but vanished on outdoor drive-through signs. The new signage, rolled out over the past few weeks, lists only "grande" and "venti."

The theory among some consumers: Starbucks is encouraging you to buy a bigger cup of joe to perk up profits.

Starbucks has been mum so far on the recent change.

The new menus rely on big photographic representation, with little in the way of details. In addition, iced coffees, ciders, doughnuts and other items are gone. The menu does add "Looking for something else? Please ask us." Post continues after video:

Needless to say, there are likely a lot of questions being thrown at Starbucks' drive-through employees.


Related Article: Will rising coffee bean prices mean higher costs for java drinkers?


The removal of its "tall" option is part of a new menu change that could, in part, help simplify ordering for its busy customers. When people are deciding among dozens of drink options, size confusion only slows the process down further -- which makes the drive-through wait all the more unbearable. Perhaps to save customers from having to delay the process, Starbucks cut the options.

Of course, if Starbucks is so concerned with customers who have to pause to think about "tall," "grande"  and "venti," it probably makes more sense to rename them "small," "medium" and "large."

 

The real reason is likely a financial one. These days, coffee prices are on the rise and Starbucks has said it will be able to absorb the price spikes internally, which could require closing some international locations.

If only customers already familiar with the menu get the option of comparing prices, the company stands to gain. Or quite simply, if a bigger size is the least expensive option out there, it prompts on-the-go customers to pay more for their morning coffee.

 

But the bottom line is that Starbucks' bottom line doesn't need a forced coffee upsell to stay healthy. On average, analysts have forecast earnings of $1.23 per share for the 2010 fiscal year ending Sept. 30. The stock is up 8.36% year to date against the Dow's loss of 0.19% and the Nasdaq's  negative 1.70%. Though it's had an up-and-down ride along with most stocks for the past six months, gaining 20% in June and then falling again.


Still, in many consumers' minds, hiding the small size is just a cash grab.


As of this writing, Burke Speaker did not own a position in any of the stocks named here.


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