Is Starbucks coffee no longer a Veblen good?

See Heard on the Street: Is That Starbucks Latte Finally Getting Too Expensive? by Spencer Jakab of The WSJ.

"You see an Iced Starbucks Blonde Vanilla Latte that costs $7.25. An economist sees a “Veblen good.”

Part of the secret to the coffee chain’s success and ubiquity has been the fact that it sells coffee not only at a huge markup to the cost of foamy brown water but simply that it costs a lot. Like an expensive handbag, the small luxury of the beverage that could be bought more cheaply elsewhere for the same utility is part of the appeal.

But, with the chain’s share price hitting a one-year low on Wednesday and same-store sales slumping, could it be hitting its limit with some customers? That is one of the interesting conclusions from a proprietary survey by analysts at Deutsche Bank.

“Among the 45% of consumers buying less or no longer buying from Starbucks, the top reason was related to price, with 47% saying ‘it's become too expensive,’ wrote Lauren Silberman’s team. Cost was “well above every other reason indicated.”

A year ago, analysts polled by FactSet saw revenue for the current fiscal year through September of $40.367 billion. That is now down to $38.784 billion. Excluding the year the pandemic hit, the chain is seen having its slowest growth in same-store sales since 2018.

Silberman thinks the slump is temporary and the deflated stock attractive. In addition to price sensitivity, part of the problem might be Starbucks' greater dependence on cold beverages and the fact that those were less desirable during a chilly winter. Spring is here—so it is about time to test that hypothesis."

Also see Veblen Goods by Andrew Loo of CFI (Corporate Finance Institute) . Excerpts:

"Veblen good is a type of luxury good named after American economist Thorstein Veblen. It shows a positive relationship between price and demand [it should say quantity demanded-CM], and thus an upward-sloping demand curve.

The demand [it should say quantity demanded-CM] for a Veblen good rises (drops) when its price increases (decreases). A Veblen good generally is considered a high-quality exclusive product and a status symbol. When the price goes higher, its status symbol makes the Veblen good more desirable to consumers with high social and economic standing. Some common examples of Veblen goods include luxury cars, wines, handbags, fine jewelry and watches and even sneakers."

"Conspicuous consumption is another relevant concept of Veblen goods. It represents the purchase of goods and services to display one’s economic power and social status, motivated by the desire for prestige.

The concept of conspicuous consumption was also identified by Thorstein Veblen in his book The Theory of the Leisure Class (1899). In the practices of conspicuous consumption, a higher price makes a product more desirable for its status symbol, which explains the features of Veblen goods from a sociological perspective."

Adam Smith may have beaten Veblen to the punch. In The Wealth of Nations, he wrote:

"With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches, which in their eyes is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves. In their eyes the merit of an object which is in any degree either useful or beautiful, is greatly enhanced by its scarcity, or by the great labour which it requires to collect any considerable quantity of it, a labour which nobody can afford to pay but themselves. Such objects they are willing to purchase at a higher price than things much more beautiful and useful, but more common." (the entire book is online)

In Veblen's chapter on "Conspicuous Consumption," there is no mention of Adam Smith. 

There is statistical or empircal evidence that supports Veblen's theory. A Ph. D. student found that rich families do spend more on "Conspicuous Consumption." 

See also Doctoral Thesis Says Rich People Spend More on Conspicuous Things. Excerpts:

"Ori Heffetz, a doctoral student in economics at Princeton University (back in 2005-now he is a professor at Cornell University), has developed the first broad-gauged index of product visibility. Sure enough, he finds in his thesis that conspicuous items make up a greater share of the consumption budget in wealthier families."

"Mr. Heffetz estimated the relationship between the amount spent on each of 29 products and a household's income, using data on 3,924 households from the 1997 Consumer Expenditure Survey, conducted by the Bureau of Labor Statistics. The "income elasticity of demand," defined as the percentage change in consumption for a 1 percent increase in income, summarizes the degree to which a good is a luxury or a necessity. A good is a luxury if a 1 percent increase in income is associated with more than a 1 percent increase in consumption of that good.

Mr. Heffetz's analysis indicates that the higher the visibility of a good, the more likely it is to be a luxury item. For example, spending on cars and jewelry, two highly visible items, rises as a share of a household's budget as its income rises, while spending on home utilities, an inconspicuous category, falls as a share of the budget as income rises."

Related posts:

China's Government Cracks Down On Displays Of Wealth On Social Media (2022)  

(See In China, Bragging About Your Wealth Can Get You Censored: Online posts by users showing off their receipts, over-ordering food or scattering money have been deemed vulgar. Regulators say such content leads young people astray by Vivian Wang and Joy Dong of The New York Times.)

Payless sold its discount shoes for $600 a pair at mock luxury influencer event (2018)

Federal Reserve Economists May Have Discovered Another Cause Of Bankruptcy (if a neighbor wins the lottery people start spending more on consumption to keep up) (2016)

Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!) (2007)