Markets

Starbucks to Raise Drink Prices Unlike J. M. Smucker - Analyst Blog

A stock chart on display
Credit: Shutterstock photo

Starbucks CorporationSBUX is reportedly increasing the prices of some of its coffee drinks, starting Tuesday, in sharp contrast to the price cuts announced by another coffee player - The J. M. Smucker Co. SJM - last week.

Beverages like venti coffee will now cost 5 cents to 20 cents more in most U.S. stores, per the company. The price increase is said to raise the average ticket at the coffee chain by around 1%.

Last year, in June, Starbucks raised the prices of some beverages at its company-operated stores by 5 cents to 20 cents. Also, the coffee company increased the list prices of its packaged coffee products sold through grocery channels by an average of 8% from July. However, last year, coffee prices were on the rise in response to the increasing coffee costs. Coffee prices hit a record high last year due to the increasing prices of Arabica coffee as a result of a drought in Brazil which produces about one-third of the world's coffee.

However, this year, green coffee costs have been going down. Coffee future prices have declined sharply from the highs witnessed in 2014.

Starbucks' price increases come at a time when other coffee companies are cutting the prices. Last week, J. M. Smucker announced that it has slashed prices of all packaged coffee products under the Folgers and Dunkin' Donuts brands by an average 6% in response to the continuous decline in green coffee futures market. The company licenses Dunkin' Donuts from Dunkin' Brands Group, Inc. DNKN .

However, Starbucks justified the price hike as a measure to offset the increasing labor and rent costs and not just coffee costs. It should be noted, however, that Starbucks is not raising prices of its packaged coffee or food items served at its cafes. Also, the prices of its Frappuccinos and grande brewed coffees will remain same.

Coffee prices are highly volatile and depend upon weather and pest infestation. Also, political decisions in coffee-producing countries, worldwide supply and demand, relative strength of the dollar, and speculative trading are the other factors influencing coffee prices.

Starbucks carries a Zacks Rank #2 (Buy). Another well-ranked restaurateur is Dave & Buster's Entertainment, Inc. PLAY sporting a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

STARBUCKS CORP (SBUX): Free Stock Analysis Report

SMUCKER JM (SJM): Free Stock Analysis Report

DUNKIN BRANDS (DNKN): Free Stock Analysis Report

DAVE&BUSTRS ENT (PLAY): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

SBUX PLAY SJM

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More