Consumer Products

Keurig Green Mountain Boosts Coffee Prices

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Source: couresty of Keurig Green Mountain
Coffee machine maker Keurig Green Mountain Inc. (NASDAQ: GMCR) announced on Thursday that it is raising prices by as much as 9% on all its single-portion packs and other coffee products beginning November 3, 2014. The company said that green coffee prices have risen by 55% over the past year, “along with increases in packaging materials, energy, and transportation costs.”

Since reaching a peak of around $2.15 a pound in mid-April, coffee prices have fallen to about $1.82 a pound. But, as Keurig Green Mountain noted, that’s still about 55% above a price of $1.20 a pound a year ago.

Starbucks Corp. (NASDAQ: SBUX), Dunkin’ Brands Group Inc. (NASDAQ: DNKN), and J.M. Smucker Inc. (NYSE: SJM), which manufactures K-cups for Keurig Green Mountain, all raised their coffee prices more than two months ago. Smucker’s raised prices on its Folgers-brand coffee but not on K-cups.

Coffee futures hit a six-month low of around $1.60 a pound in mid-July before rising to around $2.00 a pound again. Now prices have been trending lower, but the more expensive coffee that Keurig Green Mountain bought a few months ago is now getting sold through, and the company has to raise prices in an effort to maintain margins.

How the non-Keurig branded K-cup knock-offs respond will likely make the difference in whether or not the company can hold its margins. Keurig Green Mountain was right when it said that its business would not be cannibalized by unlicensed competitors, but the company’s sales did take a hit. If the unlicensed sellers don’t increase prices, K-cup sales could be hurt.

Keurig Green Mountain’s stock was trading up 0.2% in the early afternoon on Thursday at $114.31 in a 52-week range of $56.87 to $128.50.

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