Coffee Drinkers Beware: Starbucks Set To Hike Prices Of 'Labor Intensive' Drinks

Are you ready to pay more for your favorite coffee? This past Wednesday, Starbucks, announced that it will be raising the price of "labor-intensive and larger-sized" beverages due to the soaring price of green coffee beans. Due to a variety of factors, green coffee prices have reached 13-year highs, while costs for other raw ingredients, including dairy, sugar and cocoa, have also been volatile. To date, coffee futures have climbed more than 40% since June. This rise has completely altered the economic and financial landscape of many players within the coffee industry, driving up the cost of inputs. Luckily, to this point, most retailers and sellers have been able to absorb the price increases rather then passing them onto their customers. Unfortunately, with costs continuing to rise, many firms have hit a cost ceiling that has necessitated a price change. Accepting that price increases are coming, just what types of drinks will be impacted? According to Starbucks leadership, the price of many drinks, including "certain espresso beverages," will stay steady. Additionally, within the US, and most other markets, the price for the company's flagship tall brewed coffee will remain steady. Unfortunately, if your favorite drink is a Venti Decaf Caramel Frappuccino, prepare to pay up. Starbucks also noted that it is also planning to raise the price of its packaged coffee sold in grocery stores.

While Starbucks price increases may be unsettling for loyal customers, it is unlikely that Starbucks will be the only vendor raising prices. In fact, companies including Dunkin' Donuts, Green Mountain, Maxwell House, Blendz, and even Tim Hortons, have hinted that further price increase could be coming for a majority of their products. This year, bad weather in South America is threatening many of the crops that coffee importers and retailers rely on. Brazil, and top exporter Vietnam, recently discussed hoarding their stocks (a move that would further drive up price as supply decreases. U.S. stockpiles remain at 10-year lows. In response to this supply pressure, some companies have already acted. Bagged coffee from Folgers, Dunkin' Donuts and Millstone has already had its price increased by more than 10%. Kraft Foods raised prices of Maxwell House Coffee and Yuban coffee products by about 9% in August, with more price hikes expected. And finally, single-serve K-cups - sold as Tully's Coffee, Timothy's Coffee, Newman's Own Organics, Caribou Coffee and other Green Mountain Coffee brands - will see prices rise 10% to 15%, starting Oct. 11. From a shareholder perspective, these changes, and customers response to the changes, are material. Currently, sales of the brewing system and K-cups make up about 86% of Green Mountain Coffee Roasters Inc. (GMCR)'s business, and a decrease in sales will negatively impact the businesses financial liquidity. At the end of the day, what does it all mean? Simply, that coffee drinkers around the world must be prepared to pay more for their favorite cup of coffee, unless of course you can find some way to convince yourself to abandon this expensive habit.