Premise
This may be the most first world problem I can think of, and barely tangentially related to travel (tariffs!). But, I’m going to write about it anyway. I frequent a very popular bubble tea / boba chain in the Bay Area called Teaspoon and even had them cater my wedding. Recently when I stopped in I noticed the price had jumped again (I notice these types of things) and wanted to know more about it. In this post I go into the price history of a standard one topping drink, and their arguments for raising the price.
Why am I writing about this? Because I find it interesting and it piques my economics and pricing brain. Additionally, this is the first, quantifiable time that the tariffs have hit me personally, in a direct increase in price of something that I purchase. Clearly, by passing along these cost increases to consumers, Americans are paying the price of foolish trade policy.
Price History
The price comparison for is the same type of drink, with one additional topping (either boba or egg pudding). Information is easy to get because of automatic receipts sent via their payment processing system, Square.
- November – December 2017 $4.25-$4.75 and 50 cent topping – $4.75 – $5.25
- December 2018 – January 2019 – $5 and 50 cent topping – $5.50
- March 2019 – $5.25 and 60 cent topping – $5.85
Mind you, this is for the exact same drink, same toppings.
Rationale
Materials
The business cites a COGS increase of 25% due to “tariff, taxes, and inflation”. They also mention the rapid increase in minimum wage, above $15 per hour in the Bay Area. The price increase they say does not cover all of the cost increase, but at what point would customers be turned off by the product? At the end of the day it’s a nearly $6 boba tea, at 20 ounces, which is smaller than many of the competitors whose drinks range from 24-33 ounces.
A quick google search shows that approximate cost of materials is about $0.75, but we’ll say $1.00 for these “premium” quality teas. A 25% increase would mean an additional quarter per drink in materials costs.
Labor
I was not able to quantify labor costs, but I was able to find minimum wage pricing for my home store and how it has trended over time, from $12.00 as of January 2017 to $15.00 per hour in 2019. There was no change between January 2019 and March 2019, which is why the price increase during March was so surprising to me. I would assume the majority of their employees is at the minimum wage mark. However, even those supervisors that would be above it should see their wages increase to compensate.
I plotted out a comparison of drink prices vs minimum wage over time, which was not terribly useful. Next, I then normalized it to the first data point of pricing in 2017, using a $5 average drink price and $12 minimum wage, to plot the differential going forward. Not surprisingly, the increase in minimum wage from $12 to $15 per hour correlates with an increase in average drink price. As labor makes up only a percentage of overall costs the effect is smaller (or should be smaller) than the drink price increase.
Conclusion
I have since tapered off my buying of these drinks, perhaps skipping every other time. Don’t get me wrong, they are delicious, but the value is harder to justify. Perhaps when it’s expensible, or when I have an occasion to celebrate. Things will only get more expensive, so I’ll need to bump up my income to compensate.
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The other issue is that the workers will make more$$ but will not be eligible for some government benefits that they had previously and will work less hours to keep the FREE STUFF!!Also some places in the bay area put a mandatory tip on the bill causing the workers to have to pay more taxes in the end!! Another issue is at some eateries like at the airport there is a 25%surcharge?? when i have asked what it is for?? i am told for the union to pay for their healthcare.. so they get the surcharge or the tip not BOTH!! causing further issues with pay.. When the government meddles in peoples day to day issues it an only get worse… Just wait till we get SINGLE PAYER HEALTHCARE LIKE THE LEFT WANT S US ALL TO HAVE!!!!!!!
I can’t follow this train of thought, but thanks for reading!
If only the economic know-it-alls would take the time you have taken to figure out the numbers, instead of just spouting whatever economic truism fits with their political outlooks.
I don’t claim to be an economic know-it-all by any mean, I just found this topic very interesting and decided to write about it on a whim!