Starbucks said late Wednesday it would implement targeted price increases "on certain beverages in certain markets" in response to the recent jump in the price of green arabica coffee, which it said was close to a 13-year high. It also noted volatility in the cost of other key ingredients, such as sugar, dairy products and cocoa, as a factor in its decision.
The company left open the chance that it could make further adjustments to its pricing, saying it would continue to monitor green coffee prices closely and that it "could not rule out the possibility" of lifting the price of its packaged coffee products in the next few months.
The move echoes that of fast-food operator Wendy's Arby's Group (WEN), which said earlier this month that rising commodity costs will hit its restaurants in the third and fourth quarters. Wendy's expects a 2% to 3% commodity increase for fiscal 2010. Higher raw food costs would likely undermine profit margins as fast-food restaurants are hesitant to raise prices in a weak economy, according to CFO Stephen E. Hare.>>>> Bankruptcy Watch: 20 Riskiest Restaurant Stocks In a show of confidence that these moves would be enough to offset the higher ingredient costs, Starbucks reaffirmed its outlook for earnings of $1.36 to $1.41 per share in its fiscal 2011, which ends in September of next year. Howard Schultz, Starbucks's president and CEO, said it had become "untenable" for the company to absorb the expense of the surge in green coffee prices any longer in a statement. The company's plan calls for it to "maintain or lower the price of some of its most popular beverages, including certain espresso beverages; and, in most markets, its popular $1.50 tall brewed coffee; and to raise prices of labor-intensive and larger-sized beverages."