The coffee giant Starbucks (NASDAQ:SBUX) announced that they will raise prices of its packaged coffee sold in supermarkets and other retail outlets of the U.S. The rise in price will be minimal and modest.
Starbucks seems to be following the trends of others. Last week Dunkin’ Donuts (NASDAQ:DNKN) increased its coffee prices because of rising price of green coffee. The executives at Starbucks are not giving any proper reason for this hike but it might be that sudden rise of coffee bean might also be one of the reasons. The price increase per coffee is less than 1%.
The price of some drinks might increase from 5 cent to 20 cent. The price of Grande and venti brewed coffee will increase to 10 to 15 cents in most markets. Tall and venti latte and Mocha drinks in some markets will increase by 15 to 20 cents. There will be no hike for the Grand Latte, Tall Brewed Coffee and the Frappuccino beverages. Also there won’t be any increase in food price.
- Warning! GuruFocus has detected 2 Warning Signs with SBUX. Click here to check it out.
- SBUX 15-Year Financial Data
- The intrinsic value of SBUX
- Peter Lynch Chart of SBUX
The main raise will come for packaged coffee products sold in the grocery stores. The rise will be around 8%. That means a $1 coffee pouch would rise up to $9.99 for a 12oz bag. The price of coffee pouches or bags sold in Starbucks store won’t increase - only the retail outlets will be affected. Starbucks had lowered the coffee prices in 2013 by 10% and now in 2014 after the hike they have restored the same prices.
The prices of Arabica coffee has suddenly shot up between January and April because of drought in Brazil. The drought came at the peak time when the beans were developing and so all the crops were damaged. The drought created havoc in the coffee industry and prices shot up $2.19 per lb, which is the highest in two year. Starbucks claims that when coffee prices were low they have already stored plenty of coffee which will be sufficient for this year and 40 % of the next fiscal year.
The prices of Arabica coffee began falling from 2011 and by the end of 2013 it fell down by 50%, prompting the coffee makers to lower the coffee prices then. With the increase of coffee price now all the coffee giants like Smuckers (NYSE:SJM), Folgers, Dunkin’ Donuts, and Starbucks have also increased their prices. Starbucks had raised its prices last in June 2013 by around 1%, but they feel that their customers will not be affected only 20% of them would be.
Starbucks is the most famous coffee outlet of the U.S., and have retail outlets all over the world. The latest hike of the prices doesn’t seem to be driven by surging bean cost. It rather appeared to be a following trend – just because the other coffee giants were doing so , they too did it. Starbucks are well stacked up with coffee beans and so the drought too isn’t a hindrance for the company.