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From Starbucks to Maxwell House, Coffee Prices Rise

Average Joes pay as much as 30% more for a cup of joe

By Cynthia Wilson, Consumer Finance & Funds Writer


Whether you buy your morning coffee from Starbucks (NASDAQ: SBUX) or the local grocer, get ready to shell out more dough for your morning pick me up.

J.M. Smucker (NYSE: SJM), distributor of coffee brands from Folgers to Millstone to Dunkin’ Donuts and others, said Tuesday that the list price for most of its U.S. coffee products will increase 11% on average.  It’s the fourth time in 12 months that Smucker has raised the price of its packaged coffees, and the second time this year that Smucker has spiked the price of its coffees 10% or more. That leaves the Average Joe to pay as much as 34% more since September for his cup of joe.

Smucker blames a continuing rise in the costs of unroasted beans, known as green coffee – which increased 77% over the last year.  The ongoing increases also have forced Kraft Foods (NYSE: KFT) and Sare Lee (NYSE: SLE) to raise the price on their brands. Kraft is the parent of Maxwell House, and Sara Lee owns several brands including Java Coast and the single-cup brewing system sold under the Senseo name.

Analysts and coffee companies say speculators may be causing some increase. Demand, of course, is the other part of the equation. Coffee companies who have started their own lines of single-brew coffee and restaurants chains such as McDonald’s (NYSE: MCD) that have beefed up their coffee-related menu items can take some credit too.

And why not cash in on coffee sales? It seems that coffee drinkers haven’t been as deterred by higher coffee prices, at least not in the way drivers have been turned off by higher gasoline prices.  Starbucks saw fiscal second quarter sales increase 10% compared to the year ago period.  Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) said its fiscal second-quarter profits more than doubled even amid coffee price inflation. As a result, analysts boosted the company’s full-year earnings expectations even as summer approaches with its potential to dampen revenue growth.

And Starbucks, McDonalds and the like already have moved to thwart any slowdown in coffee consumption with their Frappuccino or frozen cappuccino Happy Hours.  And Smucker is applying its unexpected earnings towards the purchase of privately held Rowland Coffee Roasters, Inc., which owns Café Bustel and Café Pilon. The buy gives Smucker a leading producer of Espresso coffee in the U.S. and a foothold in the fast-growing Hispanic coffee-house market.

Of course, coffee makers have gotten some help from grocery store chains and café shop retailers who have absorbed some of the green coffee increases to keep customers coming in.  If they find they no longer can afford it, Smucker and its peers may have to rely on cravings alone to keep the coffee pots brewing.

As of this writing, Cynthia Wilson did not own a position in any of the stocks named here.

Article printed from InvestorPlace Media, https://investorplace.com/2011/05/coffee-prices-starbucks-inflation/.

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