Starbucks to Raise Beverage Prices

Starbucks said Monday it will raise the prices of beverages at company-owned U.S. outlets by an average of $0.09 on July 31 due to rising costs, particularly in dairy products. This will be the company's second round of hikes within a year. The increase will vary depending on beverage and region and will not affect whole beans or bottled drinks. "[G]iven the rising cost environment we're operating in, we think this is an appropriate time for a price increase," said company spokesman Brandon Borrman. Although the hike is being instituted only in the 6,300 company-owned stores in the U.S., Borrman noted the 3,500 licensed stores "usually follow what the company-operated stores do." CFO Michael Casey warned last month it would be "very challenging" for the chain to meet the high end of its 2007 earnings forecast, partly due to rising dairy prices. Deutsche Bank analyst Marc Greenberg called the increase a positive step in offsetting the higher costs in dairy, energy and rent. "In the short term it may pose a headwind to transaction volumes, but in the long term...[i]t exploits SBUX' leading brand strength and improves cost leverage and quality of growth," he wrote in a note. Starbucks last raised prices in October 2006.

Sources: Reuters, Dow Jones, Wall Street Journal
Commentary: Starbucks Falls on CFO's Guidance Statement • Starbucks Reverses Downward Trend • Starbucks Fairly Valued at Current Price
Stocks/ETFs to watch: Starbucks Corp. (SBUX). Competitors: Tim Hortons Inc. (THI), Peet's Coffee & Tea Inc. (PEET), McDonald's Corp. (MCD), Green Mountain Coffee Roasters Inc. (GMCR), Krispy Kreme Doughnuts (KKD). ETFs: Vanguard Consumer Discretionary ETF (VCR), iShares DJ US Consumer Services (IYC), PowerShares Dynamic Food & Beverage (PBJ)
Earnings call transcript: F2Q07

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Comments

[Winston Kotzan:]

A price hike is probably the last thing they could use right now. Don't these guys realize that coffee is a commodity and both McDonald's and Dunkin' Donuts figured that out?

2007 Jul 24 02:37 PM

[dcappe10:]

They will not be raising the prices of their non-coffee drinks, which is good for Jones Soda (JSD) as they continue to push for more market share away from Coke and Pepsi. I found a report that lists some other small-cap beverage co.'s which are looking to post similar gains in the near future...

www.pennysleuth.com/rp...

-Cheers!

2007 Aug 03 11:54 AM