Starbucks Coffee in Japan After the Sales Tax Hike
April 1, 2014
Akira Kondo

Japan’s sales tax is up today to 8 percent from the current 5 percent. My day always kicks off with Starbucks coffee. In the morning, I always grab Tall Coffee or Tall Americano. After the mid-afternoon, I sometimes get sweeter Caramel Macchiato or some Frapps. Did I get any impact from the sales tax increase? 

PictureThe prices of Tall Coffee before and after the sales tax hike
The price of Tall Coffee yesterday was 340Yen, of which 16Yen was the 5 percent sales tax.  Thus, 324Yen was the price of Tall Coffee before tax. Today, the price of Tall Coffee costs me 345Yen, of which 25Yen is the new sales tax. That said, 5Yen increased from yesterday. This 5Yen difference is about a rise of 1.5 percentage points, which is less than the 3 percent sales tax increase. 

How about everyone’s all-time favorite, Caramel Macchiato (CM)? The price of Tall CM yesterday was 430Yen, of which 32Yen is the sales tax. Today, CM costs 442Yen. That said, 12Yen was up from yesterday. This 12Yen difference is about the rise of 2.8 percent, which is almost inline with the 3 percent sales tax increase. Again, CM is one of the most popular handcrafted drinks and its popularity might have lifted its price higher than the price increase of Tall Coffee. 

If I continue to drink Tall Coffee everyday (no CM in the afternoon), my cost of obtaining it will be an extra 1,825Yen per year after today. Assume my income remains the same over a next year, I have to give up about five cups of Tall Coffee per year or five days of no Tall Coffee at Starbucks. Or should I downgrade to Short Coffee to enjoy my daily Starbucks commute? My utility at Starbucks will probably be down from now on.
PictureThe prices of Tall CM before and after the sales tax hike
Unless Japanese companies intend to increase base salaries, the rise of 3 percent sales tax increase will definitely impact on the economy and on my Starbucks life. People buy less or buy cheap for several periods at least until the sign of an increase in their salaries show up in their expectations. Japan’s economy is currently turning around and consumers will be back in a spending mode if the upswing in the economy in a long run is intact. 

I myself hope to enjoy Starbucks everyday over the next year and see how I will be impacted from a rise of sales tax. Plus, the 10 percent sales tax is due in coming years. This is an initial target for the Japanese government to implement the reduction of one quadrillion-yen government debts and the improvement of problematic social security thanks to a rapid aging population. Japanese people clearly understand those situations that the government currently faces and the path that the government/Abenomics will access into over the coming years. Japan’s economic recovery will take place when the government, companies, and consumers interact and understand to each other.

Lastly, Starbucks is a good example of showing off the interaction between the customers and the company. While the sales tax was up 3 percent from yesterday, the price of Tall Coffee was up a half of it. If the Tall Coffee was priced 3 percent higher than yesterday along with the 3 percent sales tax hike, I would have had to give up ten cups of coffee per year, instead of five. The company has well prepared into the sales tax hike to keep their customers in stores. Today, one of my favorite Starbucks stores near my home in Japan is still very crowed and the 3 percent sales tax hike seems no impact on their customers yet.