By Annie Gasparro
January 3, 2012
NEW YORK -(Dow Jones)- Starbucks
Corp. (SBUX)
is raising itsmenu prices in certain regions in an
effort to combat higher coffee prices it's facing this year.
The Seattle chain is raising prices
about 1% in the Northeast and Sunbelt regions, which include cities such as New
York, Washington, D.C., Boston, Atlanta, Dallas and Albuquerque, N.M.Starbucks
wouldn't give details of all the states that will receive an increase, but did
say it includes most Southern states besides California and Florida.
Throughout the recession and
recovery, Starbucks has continued implementing annual menu price increases, but
said it has still taken "far less" of an increase than others in the
industry.
The latest push comes as Starbucks
faces higher commodity costs this fiscal year than some of its competitors.
Starbucks contracted its coffee
prices for the full fiscal year 2012, which began in October, well in advance
because prices were getting higher and Starbucks wanted to eliminate the
volatility of buying on the spot market. However, the market for
coffee soon retreated, while Starbucks was still stuck paying more.
Over the past couple years,
Starbucks has topped the industry in sales and been able to manage commodity
inflation, "not with pricing, but with a more efficient cost structure and
strong traffic growth, which has given us a lot of leverage on our bottom
line," Chief Financial Officer Troy Alstead said when the company released
earnings in November.
Because Starbucks's higher-end
consumer base is less sensitive to prices, the company also said in November it
doesn't think further price increases will affect customer purchases, even in a
struggling economy. Some chains, especially fast-food restaurants that have a bigger focus
on value, risk losing customers when they raise prices.
Shares of Starbucks have risen 37%
over the past year, and were trading down 1.4% at $45.38 Tuesday afternoon.
This regional price increase at
Starbucks, which was reported earlier by Reuters, raises the cost of a
"tall" coffee in New York City by 10 cents. But beverages the next
size up won't change.
Still, the real margin pressure
Starbucks faces isn't at its cafes, but within its packaged coffee business,
largely because coffee costs are a bigger component of the cost structure in
its packaged-goods business than in retail cafes. "And so our retail
stores have more levers in the rest of the P&L to pull to help overcome
that coffee cost," Alstead said in November.
Last year, Starbucks implemented
double-digit menu price hikes of its packaged coffee sold at both grocerystores and in cafes. Alstead
added that, "it's a very healthy margin business even with coffee costs
the where they are."
The last across-the-board price
increases at its retail cafes, however, was in 2007.
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Contact Annie Gasparro at
212-416-2244; annie.gasparro@ dowjones.com