Starbucks products an 'affordable luxury' despite recent price hikes, says CEO Howard Schultz

Starbucks CEO Howard Schultz on Wednesday said that the coffee chain's products are affordable despite the company raising its prices at least three times since last October owing to a number of factors including inflation, supply-chain issues and labour costs.

“We haven’t seen any attrition whatsoever that demonstrates to us that the price of Starbucks coffee is not something that customers want to give. So, the demand for Starbucks despite the fact that we have had to raise prices by 5 percent over the past year because of inflation... our business is quite strong and it is still an affordable luxury,” said Schultz in an exclusive interview with CNBC.

Overall, the coffee prices are likely to rise further on the demand and supply mismatch as Brazil, the world's largest coffee producer, is expected to see a sharp drop in its production and export owing to adverse weather conditions.

As Starbucks faces tough times amid higher costs for ingredients and labour, it is reworking its approach from a focus on cafes with long visits to mobile pickup and delivery.

“We have record demand right now throughout our stores in the US. So we are meeting our customers on mobile order and pay, meeting our customers at drive-through, pick-up stores and 2500 stores in America are still relevant in terms of third place. However, the third place is not limited to the four walls of Starbucks, it is the emotional connection that our people have with the customer," said Schultz.

Schultz added that the company has asked employees to return to office in a hybrid model. "I have asked people to come back to office. We are a collaborative organisation, we need to be together," he said, adding that about 2,00,000-3,00,000 people in the US are working in the stores and roasting plants.

Earlier this month, Starbucks named Laxman Narasimhan, the current CEO of Lysol owner Reckitt, as its next chief executive officer, who will join the company in October and take the helm in April.

“There have been many memes and suggestions from India post the appointment announcement. I have got a lot of suggestions of what I need to do," said Narasimhan during the interview with CNBC. Before Reckitt, Narasimhan had held key positions at PepsiCo and McKinsey, consulting firm.

Schultz will continue to be on Starbucks’ board after Narasimhan takes over and act as an advisor.

In April, Schultz made a comeback as Starbucks CEO for the third time after Kevin Johnson retired. Earlier, Schultz served as the CEO of the company from 1986 to 2000 and from 2008 to 2017.

“I’m never coming back again, because we found the right person,” he added.