StarbucksStarbucks (SBUX) has announced a 17% hike in the price of its packaged coffee to compensate for the steep increase in Arabica coffee prices. Its competitors in the broader market for specialty coffee include McDonald's (MCD), Caribou Coffee (CBOU) and Peet's Coffee (PEET). Our price estimate for Starbucks stands at near $40, which is in line with the market price.

Why Coffee Prices are Rising?

In May 2011, Arabica coffee futures hit their highest price in 14 years on concerns that upcoming harvests would be insufficient to supply the world's growing consumption of coffee. According to some analysts, a rush from coffee roasters such as Starbucks to hedge as much of their price exposure led to the increase in price of coffee futures. Many believe that Starbucks has typically hedged two to three months ahead of its needs due to the prospects of higher coffee prices in the near term. Increases in farming costs coupled with storms in Columbia also led to the substantial price increases.

Starbucks sells packaged coffee and tea globally through arrangements with grocery and warehouse club stores, such as Costco (COST). Currently, its packaged coffee and tea are available in close to 37,000 such stores worldwide.



The increased prices are likely to affect the company revenues. However, the customers who are habituated to Starbucks coffee might still splurge on their highly priced coffee products. Still, we believe the passing on of higher prices to customers will affect Starbucks' top line. Other sellers like Smuckers (SJM), Sara Lee (SLE) and Peet's have also raised prices on coffee products.



See our full analysis for Starbucks stock here



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52 Comments

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captmerit

who buys thAt OVERPRICED coffee?

July 18 2011 at 11:58 AM Report abuse rate up rate down Reply
BABIN

Like I say you can drink whatewer you like IF YOU have the money to pay your own regular living bills and not use C.C. to cover this hole...young generation use to drink this stuff but exactly same generation living month after month on parents money is just can't work in that way...In the end again if we pull out credit card out of the system anybody can see THE REAL Economy and buying power for USA Consumers...AMEN...

July 18 2011 at 9:45 AM Report abuse rate up rate down Reply
mbzmc

17% hike in price is a very low increase when compared to most other food products. Massive inflation in food costs is hitting the shelves. Whatever is left over in the world is offered to the U.S. Products are first sold to other countries before the U.S. This is due to the demand from the rest of the world combined with the ease it is to do business with other countries. The U.S. is very difficult to do business with. There are more restrictions, regulations, taxes and paperwork, fees to do when importing to the U.S. than anywhere else. You haven't really seen the full impact of costs yet. Even American growers prefer to sell their crops outside the U.S. They get more money for thier products and it is easier to do business with other countries and there is much less risk.

July 18 2011 at 7:04 AM Report abuse +1 rate up rate down Reply
jj21904

Buy American coffee beans no inport fee.

July 18 2011 at 2:56 AM Report abuse +2 rate up rate down Reply
2 replies to jj21904's comment
mehensley

There is no American Coffee Beans. If you want Good Coffee, But Dunkin Doughnuts Beans, They are the best.

July 18 2011 at 5:36 AM Report abuse -3 rate up rate down Reply
pfjw

Kona coffee is limited in availability, expensive - and the only coffee that comes from the United States. I am sure that the farmers in Hawaii would be thrilled by your choice, however.

I have a simpler solution - just don't drink coffee.

July 18 2011 at 7:54 AM Report abuse rate up rate down Reply
jj21904

Bye, Bye Starbucks.

Perk it over a campfire, cheaper. Oh, forgot you don't you little bitty hands to get dirty,

July 18 2011 at 2:48 AM Report abuse +2 rate up rate down Reply
nxston08

Drink tea

July 18 2011 at 2:23 AM Report abuse rate up rate down Reply
msims82696

amazing how the experts still can't seem to spell the country correctly. how about colOmbia?

July 18 2011 at 1:35 AM Report abuse rate up rate down Reply
cavekarst

There's Starbucks and the other stuff.
I was spending $22 weekly but have
cut my consumption by half. Hot and
black Italian Roast please.

July 18 2011 at 12:50 AM Report abuse +1 rate up rate down Reply
Mr. ROC

American grown coffee is the answer. Look for new coffee beans coming from the high desert parts just north of Los Angeles. Climate is similar, water is available and lots of slopes at the foot of the mountains in which to grow coffee beans.
Look for it at you supermarkets in 2012. AGC brand, American grown Coffee. AAGC on the big board, All American Grown Coffee.
Mr. ROC CEO American Grown Coffee , a subsiderary of ROC Global

July 18 2011 at 12:33 AM Report abuse +2 rate up rate down Reply
jhrochesterny

Almost a year ago coffee started to not taste as good to me so I slowed down my consumption, never cared much for Starbucks but liked eight o clock, ground my own, but somehow it wasnt tasting like it used to, so I switched to dunkin donuts, but even that wasnt like I remember a good cup should taste like, so I just switched over to tea, which might be more expensive per ounce or pound but seemed to last a long time before I needed to buy more so now I dont drink much of either, just sugar free generic lemonade from powdered mixes is my usual drink. Dont seem to miss the cafeine either. Hot chocolate is another option for when the weather turns cold and I need a hot drink. And yes I filter my water and clean my coffee maker so it wasnt that that made the taste worse, I suspect the quality of the beans was lowered to keep prices down, like just about everything else that isnt like it used to be.

July 17 2011 at 11:52 PM Report abuse +2 rate up rate down Reply