Starbucks has no plans to hike coffee prices

By Reuters
Posted Aug. 17, 2010 at 12:26 p.m.

Starbucks Corp. has no plans to hike prices, though higher coffee costs are expected to weaken profit in the upcoming fiscal year, the company said Tuesday.

The world’s biggest cafe chain repeated its fiscal 2011 profit target of $1.36 to $1.41 a share, which includes an expected hit of 4 cents primarily from higher coffee prices. Starbucks’ 2011 fiscal year begins Oct. 5.

Starbucks, other restaurant companies and packaged food makers are feeling the pinch of higher prices for ingredients such as coffee, wheat, dairy and beef. But they are hard-pressed to raise prices amid a weak economy and high unemployment.

Starbucks told Reuters it plans to navigate the volatile market without raising prices on drinks such as lattes and drip coffee.

Spokeswoman Trina Smith said Starbucks has been monitoring coffee prices for some time, and it currently does not have plans to raise prices.

Starbucks shares were up 2.6 percent to $24.43 in afternoon trading on the Nasdaq.

Benchmark December arabica futures — currently the benchmark “C” contract — have jumped more than 30 percent since June 9, hitting $1.8290 per pound Monday, the highest level in more than 12-1/2 years.

The “C” contract trades on ICE Futures U.S. and is the world benchmark for arabica coffee. Physical coffee sales use the “C” contract as a guideline, so depending on the quality of the beans, buyers pay a discount or premium to that.

Starbucks has long-term relationships with farmers, traders and co-ops and has bought most of its coffee for its upcoming fiscal year, spokeswoman Sanja Gould said. “We are contracted well into fiscal 2011,” she said.

“For many years, Starbucks has diversified its coffee procurement into multiple coffee-growing regions, and we remain confident in our ability to manage this dynamic effectively,” the company said in a statement.

Mass-market coffee sellers recently raised prices on their well-known grocery brands.

Top U.S. packaged coffee seller J.M. Smucker Co. on Aug. 3 raised prices for most of its Folgers, Dunkin’ Donuts, Millstone and Folgers Gourmet Selections in the U.S. by an average of 9 percent, citing higher green coffee prices. Kraft Foods quickly followed with U.S. price hikes on select Maxwell House and Yuban ground and instant coffees.

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