Starbucks to Raise Prices Due to “Surging” Costs
In a rather round-a-bout statement straight out of Seattle, headquarters of Starbucks brand, the company announced that prices on some of their items will be going up yet again. In a response to “dramatic increases in the price of green arabica coffee”, along with “volatility in the price of other key raw ingredients, including dairy, sugar and cocoa” will lead to adjustments in prices in certain markets.
Starbucks is quick to mention that “it has no plans to raise prices of beverages or packaged coffee sold in Starbucks U.S. or international stores across-the-board“. This statement opens up the possibility that individual or targeted markets will be subjected to higher prices on some of the more premium, larger-size and labor-intensive menu items. Further introspection into their statement reveals more-than-likely higher prices on packaged Starbucks retail coffee in grocery stores within the coming months.
Press Release:
Sep 22, 2010
Starbucks Responds to Surging Green Coffee PricesCompany to Implement Targeted Price Adjustments;
Will Hold the Price of Tall Brewed Coffee at $1.50 in Most U.S. Markets;
Retail Packaged Coffee Price Increases Possible
SEATTLE, September 22, 2010 – Starbucks (NASDAQ: SBUX) today 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. The company 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. The targeted price adjustments announced today should mitigate the impact from more recent rising costs.
About My Starbucks Rewards
Since January, Starbucks customers in the U.S. have earned millions of free beverages through the My Starbucks Rewards program. My Starbucks Rewards now has over one million Gold Level members who earn a free drink after every 15 purchases at participating Starbucks stores. Members also receive free select syrups, milk options and refills on tea or brewed coffee during a store visit. To join, customers can register any Starbucks Card and pay for purchases with the card to earn a star for every transaction.
About Starbucks
Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting the highest quality arabica coffee in the world. Today, with stores around the globe, the company is the premier roaster and retailer of specialty coffee in the world. Through our unwavering commitment to excellence and our guiding principles, we bring the unique Starbucks Experience to life for every customer through every cup. To share in the experience, please visit us in our stores or online at starbucks.com.
Forward-Looking Statements
This release contains forward-looking statements relating to increases in consumer packaged goods, price adjustments, commodity prices, and EPS. These forward-looking statements are based on currently available operating, financial and competitive information and are subject to a number of significant risks and uncertainties. Actual future results may differ materially depending on a variety of factors including, but not limited to, coffee, dairy and other raw material prices and availability, successful execution of the company’s initiatives, fluctuations in U.S. and international economies and currencies, the impact of competition, the effect of legal proceedings, and other risks detailed in the company filings with the Securities and Exchange Commission, including the “Risk Factors” section of Starbucks Annual Report on Form 10-K for the fiscal year ended September 27, 2009. The company assumes no obligation to update any of these forward-looking statements.
