Starbucks Coffee Gets Expensive - Analyst Blog
01 Juin 2011 - 6:57PM
Zacks
Starbucks Corp. (SBUX) replicated many coffee
retailers by increasing the price of packaged coffee to combat the
record 125 per cent steep climb in Arabica coffee prices. Starbucks
recently raised its prices and announced a 17 per cent hike in the
price of its packaged coffee.
Analysts feel that among several factors that led to this
abnormal hike in Arabica coffee futures the most important was a
rush from coffee roasters such as Starbucks to hedge as much of its
price exposure as possible. With the prospect of higher coffee
prices on the horizon, Starbucks typically hedged two to three
months ahead of its needs, according to traders.
By January, Starbucks had fully hedged through the end of
September which implied eight months ahead. In April, the company
said it had piled coffee stock until almost the end of the calendar
year.
Additionally, increases in farming costs, like more expensive
fertilizer, coupled with storms in Columbia last year that damaged
flowering also contributed to the cost pull inflation in high
quality Arabica coffee.
Other coffee retailers are also passing the increased cost to
the consumers in the form of higher prices. Smuckers, maker
of Folgers and Dunkin Donuts coffee, announced on May 24 that they
will raise prices close to 11 percent on U.S. coffee products.
Sara Lee Corp. (SLE), owning Maison du Cafe,
L'Or and Cafe Pilao, raised its coffee prices owing to rising green
coffee costs. Peet's Coffee and Tea Inc. (PEET)
has doubled its retail prices in response to raw material
costs.
Starbucks’ coffee lovers were taken aback when the Starbucks,
world’s largest coffee chain announced its hike in prices as the
company had announced earlier this month that it had already
contracted its coffee purchases for the remainder of the fiscal
year.
Currently, we maintain a Neutral rating on the stock on a
long-term basis. Further, Starbucks holds a Zacks #3 Rank, which
translates into a short-term Hold rating.
PEETS COFFE&TEA (PEET): Free Stock Analysis Report
STARBUCKS CORP (SBUX): Free Stock Analysis Report
SARA LEE (SLE): Free Stock Analysis Report
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