Some coffee companies, like Starbucks Corp. (NASDAQ: SBUX), hedge prices by locking up contracts that extend for five years. Other coffee purveyors have attempted to raise prices. In at least one case, there has been a sharp backlash, based on a decision to increase prices as a means to help its corporate margins. According to Reuters, on November 19:
J.M. Smucker Co, the maker of Folgers coffee, said on Wednesday it made a “misstep” with its most recent price increase, which caused sales volumes to drop sharply as customers delayed purchases and shifted to cheaper private-label brands.
J.M. Smucker Co. (NYSE: SJM) was not alone. Last month, according to the Chicago Tribune:
Kraft Foods, maker of Maxwell House coffee, said Wednesday it will raise prices on most of its U.S. single-serve coffees for the first time, extending its price increases to the more lucrative market.
Kraft will raise the price of its Maxwell House, Gevalia, McCafe and Yuban K-Cup packs by about 9 percent, effective Dec. 28, due to sustained price increases in associated raw materials, a company spokeswoman said.
For Kraft Foods Group Inc. (NASDAQ: KRFT) and others, the price increase has been blamed mostly on droughts that have hit growers in Brazil, the largest producer in the world. That means the problem could not be anticipated well in advance.
It is still too early to say whether rising coffee prices will hurt American demand for coffee. It is one of the few beverage products in the United States for which there is no direct competition. Of course, people could turn to tea. In many cases, the price of tea has fallen.
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