Why rising coffee prices won’t change what you pay for Starbucks drinks

Recently in Brazil, coffee has become more expensive due to lack of supply due to bad weather. This week Arabica coffee futures hit their highest price since 2014.

“Coffee market volatility does not affect retail pricing plans, and our pricing strategy remains unchanged,” a Starbucks spokesperson told CNN Business.

starbucks (SBUX) It’s been able to avoid raising prices for customers because of its buying strategy, CEO Kevin Johnson explained Tuesday during an analyst call discussing earnings.

Johnson said Starbucks has employed a number of tactics to make sure it can buy coffee beans at an “attractive price.” They include buying coffee ahead of time and locking in prices, Johnson said.

“Typically coffee chains are well-furnished, but the length of coverage” varies from company to company, said Carlos Mera, who heads Rabobank’s agricultural commodities markets team and specializes in coffee prices.

Johnson said that for Starbucks, short-term volatility could offer an advantage.

“This gives us a significant advantage relative to our competitors that, if they didn’t buy it already, certainly wouldn’t have the cost structure that we put in place,” he explained.

Some competitors are less sure that rising input prices will not impact consumer payments.

JDE Peet’s, which has a comprehensive coffee portfolio that includes Peet’s Coffee, Stumptown and Intelligentsia, said in a statement that “over the past 12 months we have seen a sharp increase in materials, freight and other costs, for which we need to take reasonable costs.” measures will be required,” it said, adding that “historically, significant fluctuations in green coffee prices have been reflected in the market and we expect this precedent to continue.” Green coffee refers to raw, unroasted coffee beans.

The company said that “Our top priority as always is to offer our consumers consistently high quality coffee products through our brands.”

What’s going on in the coffee market

Recently, a devastating frost in Brazil has damaged the country’s coffee trees and could severely reduce its supply.

“It was the worst frost in 27 years,” said Rabobank’s Mera. He said the incident could mean the loss of millions of bags of coffee in Brazil.

This week, the price of Arabica coffee has increased due to frost. But coffee prices were rising even before the frost for a number of reasons, Mera said, including dry weather in Brazil, protests in Colombia and an increase in shipping container cost, among others.

“If these prices remain high, they will have to be passed on to consumers,” he said. But larger companies have ways to keep prices relatively stable for customers.

“Most companies have some sort of risk management in place, so they can mitigate the crisis a bit,” he said, and “may be able to delay any price increases.” In addition, some drinks such as cappuccino, which use less coffee than other ingredients, will not be affected as much by higher coffee prices, he said.


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