Coffee prices closed above their 20-day moving average Friday for the first time in more than a month. A pound of arabica closed at around $1.76 a pound after touching a four-month low of around $1.67 on Thursday.
A company spokesman told the NY Post that more than just the commodity price of coffee goes into Starbucks’ pricing decision. He cited “competitive dynamics” and the company’s “cost structure.”
Part of the competitive dynamic is likely to be price hikes already instituted by competitor The J.M. Smucker Co. (NYSE: SJM) which sells Folgers and Dunkin’ Donuts brand coffees. Smucker’s raised its prices by 9% for the bagged coffee and Kraft Foods Inc. (NASDAQ: KRFT) raised its prices by 10% last week. Dunkin’ Brands Group Inc. (NASDAQ: DNKN) has not announced an increase in per cup prices and licenses its brand to Smucker for bag sales.
Starbucks was believed to be insulated from having to raise prices because of its commodity hedging program for green coffee. But for the first two quarters of its fiscal year, the company has posted nearly $11 million in hedging losses to cost of sales. Now it probably would have been worse without the hedging, and it’s not much compared with the two-quarter total cost of sales of $3.4 billion.
Still, Starbucks has just announced a new tuition offer for employees and customers are going to have to pay their share of the company’s costs, just like shareholders. Or so it appears.
Starbucks stock is down about 0.9% in late afternoon trading Friday at $76.54 in a 52-week range of $63.18 to $82.50.
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