PRICES WORRY BEAN COUNTERS

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A 35-year-old art dealer sipping coffee at a corner Starbucks shop in Chicago seemed relatively undisturbed that the retail chain was ready to raise its prices 10% at the end of last week.

"My mocha coffee is my one treat of the day," she said. "So if it's $2.84 or a little over $3, what's the difference?"

As Brazilian coffee growers struggle with widespread crop damage because of unseasonably cold weather, U.S. coffee marketers are hoping higher prices won't frost consumers' newfound love of java.

According to the Specialty Coffee Association of America, 1993 marked the first year coffee consumption has risen since 1976.

But anticipated coffee shortages have already translated into higher prices for marketers and consumers. Procter & Gamble Co. has increased the wholesale price of a 13-ounce can of Folgers by $1.10, or 47%; the cost of General Foods' Maxwell House brand has risen $1.05, or 44%; and Nestle Beverage Co. has raised the price of its Hills Bros. brand $1.55, or a whopping 82%, over the past eight weeks.

Interestingly, Seattle-based Starbucks Coffee Co. just last September hiked beverage prices 10%, using the same in-store signs to alert customers that it's using now. Ongoing market fluctuations in coffee prices necessitated the previous and current price increases, a Starbucks spokeswoman said.

But last year's increase hasn't put a dent in customer traffic; same-store sales for the nine months ended July 3 were up 10%, compared with a 9% rise for the year-ago period. The company doesn't expect this round of price hikes to do any damage.

It doesn't hurt that Starbucks' competitors are also raising prices across the board. With 140 stores nationwide and 1993 sales of $40 million, the Coffee Beanery, Flushing, Mich., has hiked beverage prices by roughly 10 cents a cup and coffee beans by $1 a pound.

"We hadn't raised coffee prices in six years," said Coffee Beanery President JoAnne Shaw. "But coffee is still one of the least expensive beverages by the ounce. It's still a very affordable luxury."

Many other retailers and fast-food chains with big coffee businesses are adopting a wait and see attitude before instituting price hikes.

Both Allied-Lyons' Dunkin' Donuts chain and Southland Corp.'s 7-Eleven unit say they're still studying the situation. Burger King Corp. said it doesn't expect price increases through the end of 1994.

Though marketers are well-known for countering higher raw material costs with cuts in marketing budgets, General Foods said it has no plans to alter budgeted ad spending for Maxwell House brands through the end of the year. P&G wouldn't comment.

Both marketers decreased ad spending on coffee in 1993, according to Competitive Media Reporting, as lower coffee prices translated into slimmer margins. Spending on Folgers fell 8% to $65.8 million in '93, and Maxwell House spending fell 33% to $37.4 million.

Nestle hasn't advertised Hills Bros. and MJB since 1991, though it invested $12.9 million in '93 measured media on the Taster's Choice "Tony & Sharon" campaign.

An executive at McCann-Erickson Worldwide, New York, which handles the Taster's Choice campaign, said spending isn't likely to be altered this year.

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