Monday, October 15, 2012

The Starbucks Index

During our travels abroad, Andy mentioned early on, something called the Big Mac Index.  Basically, the price of a Big Mac in any given city would in turn show how expensive that city is compared to others.  Since I don't eat Big Macs, I decided that I would index how expensive it was for me to go to Starbucks in various cities we visited.  I normally get a venti chai tea latte, so that's what I recorded the price for in each city.  Below I've listed them from least expensive to most expensive.

USA - $4.19
Stuttgart - 4.40 € ($5.72)
Prague - 115 kc  ($5.75)
Munich - 4.50€ ($5.85)
Vienna - 4.60 € ($6.09)
Paris - 4.95€ ($6.44)
Zurich - 7.35 Swiss francs ($7.94)

As you can see, it's the least expensive here in the States.  The problem we encounter in Europe is that the US dollar is weaker than the Euro and other European currencies.  The exchange rate changes daily based on global markets and projections, so every day our US dollar was worth a different amount.  During our stay, in order to get 1 Euro, it varied anywhere from $1.34 to $1.23.  The last time the Euro and the US dollar were equal at 1 was during July 2002.  Before that, the dollar was stronger than the Euro.  Also remember, that although the Euro was introduced in 1999 and not made the legal tender of all countries involved until January 1, 2002.  Another interesting point is that in Europe, there's a 20% luxury tax included in these prices.  Imagine paying 20% tax on pretty much everything except groceries.

You can easily see that in Zurich, my Starbucks was the most expensive, close to double what I pay here in the States.  Zurich is one of the most expensive cities in the world.  Although the Swiss franc is very close in its exchange with the dollar, there is a reason why it's so much more expensive when we compare it to our Starbucks.  When we were there, Andy's friend, Nadia, explained that minimum wage in Switzerland is 25 francs (which equivalent to over $25).  Their prices are based on how long it takes for someone to earn that much.  So since our minimum wage is less than $10, it would take someone about half an hour to earn the amount it would cost to go to Starbucks.  For them, their minimum wage is higher, thus they earn more in half an hour.  It evens out in the end depending where you live.

This was something cool I wanted to share with all of you because when you travel, you probably think the price difference is due to the exchange rate not being in our favor.  It was fun to learn the real reason.

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