Starbucks Responds to Surging Coffee Prices

Posted by Nicole Eckersley on 30th September 2010

US chain Starbucks Coffee has responded to the recent dramatic increases in the price of green arabica coffee, currently close to a 13-year high, as well as significant volatility in the price of other key raw ingredients, including dairy, sugar and cocoa.

Starbucks announced that while it has no plans to raise prices of beverages or packaged coffee sold in Starbucks U.S. or international stores across-the-board, it does plan to implement targeted price adjustments on certain beverages in certain markets.

The company further announced that it will continue to closely monitor green coffee prices, and that it could not rule out the possibility of raising the price of packaged coffee in other channels, including grocery, in coming months.

“Over the last six months a highly speculative green coffee market and dramatically increased commodity costs have completely altered the economic and financial picture of many players in the coffee industry,” said Howard Schultz, Starbucks chairman, president and CEO.

“And while many, if not most, coffee roasters and retailers began raising prices months ago, we have thus far chosen to absorb the price increases ourselves and not pass them on to our customers. But the extreme nature of the cost increases has made it untenable for us to continue to do so and we have been forced to take the steps we announced today,” Schultz added.

As part of the plan, Starbucks expects 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.

The company also said that it would continue to carefully monitor and evaluate green coffee prices and the possibility of raising prices in consumer packaged goods channels in coming months. “As we navigate this challenging cost environment, we will continue to offer value options for our customers every day through our My Starbucks Rewards loyalty program and other promotions,” added Schultz.

The company also reaffirmed the outlook it provided in its third-quarter earnings call on July 21, 2010, targeting a range of $1.36-$1.41 earnings per share in fiscal 2011, which at that time reflected the then-current rise in commodity costs as well as the company’s efforts to absorb a portion of those cost increases.