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Prices Rising for Starbucks Coffee

Photo of Paul Ausick
By Paul Ausick Updated Published
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starbucks_coffee_cup

courtesy of Starbucks
In March Starbucks Corp. (NASDAQ: SBUX) CEO Howard Schultz said that the company had no plans to raise its prices. This morning the company announced that a grande or venti coffee would cost between 10 and 15 cents more come next Tuesday. Packaged coffee sold in supermarkets and other retail stores will cost $1 per bag more beginning July 21st. Bagged coffee sold in Starbucks’ own stores will not see a price hike.

Coffee prices closed above their 20-day moving average Friday for the first time in more than a month. A pound of arabica closed at around $1.76 a pound after touching a four-month low of around $1.67 on Thursday.

A company spokesman told the NY Post that more than just the commodity price of coffee goes into Starbucks’ pricing decision. He cited “competitive dynamics” and the company’s “cost structure.”

Part of the competitive dynamic is likely to be price hikes already instituted by competitor The J.M. Smucker Co. (NYSE: SJM) which sells Folgers and Dunkin’ Donuts brand coffees. Smucker’s raised its prices by 9% for the bagged coffee and Kraft Foods Inc. (NASDAQ: KRFT) raised its prices by 10% last week. Dunkin’ Brands Group Inc. (NASDAQ: DNKN) has not announced an increase in per cup prices and licenses its brand to Smucker for bag sales.

Starbucks was believed to be insulated from having to raise prices because of its commodity hedging program for green coffee. But for the first two quarters of its fiscal year, the company has posted nearly $11 million in hedging losses to cost of sales. Now it probably would have been worse without the hedging, and it’s not much compared with the two-quarter total cost of sales of $3.4 billion.

Still, Starbucks has just announced a new tuition offer for employees and customers are going to have to pay their share of the company’s costs, just like shareholders. Or so it appears.

Starbucks stock is down about 0.9% in late afternoon trading Friday at $76.54 in a 52-week range of $63.18 to $82.50.

ALSO READ: Why You Should Expect Higher Coffee Prices Ahead

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About the Author Paul Ausick →

Paul Ausick has been writing for 247Wallst.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.

He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.

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