June 22, 2013 in Business

Cup o’ joe may cost you more

Starbucks customers will pay a little extra for some drinks
Candice Choi Associated Press
 
Details of the price hike

Price jolt: Starbucks Corp. said it’s hiking prices on average by 1 percent nationally starting Tuesday.

Details: The company said the price for many drinks, such as medium and large brewed coffees and Frappuccinos, won’t change in most of its 11,000 U.S. cafes.

Background: The price hikes come even as coffee costs have been falling. In the latest quarter, Starbucks cited lower coffee costs for a stronger profitability. The company notes that coffee represents just one of many costs and historically has accounted for less than 10 percent of store expenses.

Associated Press

NEW YORK – Starbucks wants a little extra change for that latte.

The Seattle-based coffee company says it’s hiking prices on average by 1 percent nationally starting Tuesday. But it says the price for many drinks, such as medium and large brewed coffees and Frappuccinos, won’t change in most of its 11,000 U.S. cafes.

For a small brewed coffee, the price will increase by 10 cents at most. Other drinks could increase by more than that.

“Less than a third of beverages will see a small increase in most stores,” said Lisa Passe, a Starbucks spokeswoman. She noted that the increases will vary by region and may apply to different drinks.

Depending on the market, Starbucks Corp. notes it’s the first price hike most customers will see in about two years.

The price hike comes despite falling coffee costs that have boosted the company’s profits. In the latest quarter, Starbucks cited lower coffee costs for a stronger operating margin, which represents the money it pockets from sales after subtracting what it pays to keep stores running.

And those lower coffee costs are expected to continue padding its bottom line.

Earlier this month, a Janney Montgomery Scott analyst issued a note to investors saying Starbucks is likely to benefit from lower coffee bean costs for the next few years. Based on the price of a coffee contract at the time, Mark Kalinowski estimated that Starbucks would pay about half the $1.4 billion it did for coffee in 2012.

But Starbucks notes that coffee represents just one of its many costs and historically has accounted for less than 10 percent of overall store expenses.

Passe said other expenses include rent, labor, marketing, equipment and other ingredients such as milk and sugar.

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