I was recently surprised to learn from The Economist that a Starbucks Tall Latte sells for the same price as a McDonald’s Big Mac in the USA. $2.80 to be exact, and really I shouldn’t have been surprised.
This in The Economist’s latest update on their annual exchange rate survey of PPP, which we’ve written about previously on this blog, called The Big Mac Index. It’s a tongue-in-check way to evaluating whether currency exchange rates are anchored in the real world.
In this latest update they’ve also included a Starbucks Tall-Latte Index, for comparison purposed. What I find more interesting than the PPP difference, is the relative value different populations put on their cup of Joe.
If you start by granting that the price of a Big Mac is reasonable and use that as an anchor to compare against the price of coffee, then the people living in most of the countries on this list are getting a fantastic deal on their Latte compared to us in the USA. In other words whereas we pay an equivalent price for both, they are paying a much lower relative price for their Latte.
“So what” you might say. Well, if you would have told me 10 years ago I’d be happily paying $2.80 for a Latte I would thought you nuts. But Starbucks has managed to change all that, more power to them. They are now expanding rapidly in all those currently ‘low price’ countries and working to replicate their marketing success in the USA.
You could argue that as a population we’re just rich and stupid, but I’d rather give the nod to Starbucks’ understanding of their market.
Full disclosure, I’m long SBUX.
Pet Peeve of the Day: Why should I have to remember that McDonald’s has an apostrophe, but Starbucks doesn’t? And have you ever noticed that the Wall Street Journal. puts a period at the end of their name.