Starbucks: Bagged Coffee Prices Raised 17%

(Article on Starbucks raising coffee prices updated with additional information.)
SEATTLE ( TheStreet) -- Starbucks ( SBUX) announced a 17% price hike in bagged coffee, underscoring the pressure coffee retailers are facing as Arabica coffee bean futures continue to trade near decades-long highs.

Starbucks announced the price hike on Wednesday, echoing J.M. Smucker's ( SJM) move a day earlier, but market watchers and consumers were still absorbing the news on Thursday.

Coffee futures hit a three-decade high of $3.0615 per pound on May 3 but have come down somewhat from that price in recent trading sessions. The commodity most recently traded at $2.6400 per pound.


For Starbucks, the move to raise prices comes as somewhat of a surprise since the coffee shop chain said earlier this month it had already contracted its coffee purchases for the remainder of fiscal 2011, locking in its costs.

Starbucks said the price hikes will be applied to bagged coffee sold at its cafes in the U.S., effective July 12. It was the first price increase on café-sold bagged coffee in two years. In March Starbucks hiked the price of bagged coffee sold at supermarkets by 12%.


Adding to Starbucks' margin woes, its Seattle's Best Coffee unit is owed around $5 million in trade debt from Borders Group ( BGP), according to a Bloomberg report.

Borders, the second-largest book chain, filed for bankruptcy protection in February .


Borders requested to end its licensing agreement with Seattle's Best, arguing that it can reduce costs and increase profit by operating its own store cafes.

Starbucks's Seattle's Best asked the U.S. bankruptcy court judge in Manhattan to reject the request, saying the bookstore operator was not entitled to cancel the agreement while continuing to use the Seattle's Best trademarks and products.

On Tuesday, J.M. Smucker raised coffee prices for the fourth time this year in response to soaring Arabica costs, and this latest price hike is the largest yet at 11%.

J.M. Smucker implemented the price increase on its Folgers, Dunkin' Donuts and Millstone brands of coffee.

J.M. Smucker has raised prices by 34% over the past year as it struggled to maintain margins amid soaring coffee costs.

J.M. Smucker said that green coffee costs were "significantly higher in the second quarter of 2011." Smucker raised prices of its Folgers and other well-known brands by around 9% earlier this year.

Green Mountain Coffee Roasters ( GMCR) said recently that its margins have been growing despite soaring coffee bean costs.

Even so, the Vermont coffee maker said in early May that its margin improvement was a result of successfully passing on higher coffee costs to buyers, and that it would likely raise prices again.

In December, Starbucks CEO Howard Schultz called the 50% spike in coffee futures "tragic," blaming financial speculators for the run-up in prices.

John Culver, president of Starbucks Coffee International, said "we think that these prices are not based on facts given there is no supply problem," according to reports in Swiss newspaper Tages-Anzeiger published earlier this month. "Speculators are at work here."

Peet's Coffee & Tea ( PEET) lowered its profit guidance by 10 cents per share as coffee prices skyrocketed.

Canada-based coffee shop chain Tim Hortons ( THI) did not specifically mention how rising coffee and commodity costs affected its results last quarter, but reported that its cost of sales jumped 15.9% last quarter to a 62.5% share of total revenue, up from 59.6% share in the year-earlier period.

-- Written by Miriam Marcus Reimer in New York.

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