Major Coffee Brands to Trim Prices, but No Cuts Brewing at Starbucks

A bumper crop of coffee beans will mean lower prices for America’s two top coffee brands. But don’t expect a break on the premium java at your local coffeehouse.

Procter & Gamble Co. and Philip Morris Cos. this week both announced price cuts, beginning in September, of 10 cents on their 13-ounce cans of Folgers and Maxwell House brands. It was the first such price cut in more than a year.

But prices at many specialty coffee chains such as Peet’s Coffee & Tea and Starbucks Coffee have gone up and could continue to increase amid rising global demand for specialty beans and escalating labor costs.

“The change in prices is going to have a very small impact on the profit of the [coffeehouse] operator,” said Don Holly, a director of the Specialty Coffee Assn. in Long Beach. “The actual cost of coffee relative to the finished beverage is just a fraction.”

Last week, Peet’s raised the average price of its specialty coffees between $1 and $2 a pound. The prices of its prepared drinks bumped up an average of 5 to 20 cents.

A Peet’s spokeswoman said the company was compensating for its higher wage and benefit costs during the last year. A booming economy and tight labor markets has forced the company to raise starting salaries for staff and managers and to introduce more lucrative bonus programs.

Starbucks raised the price of all of its coffee drinks an average of 10 cents in May. Company officials said there are no immediate plans to increase prices further.

Declining coffee prices on supermarket shelves stem from lower commodity prices on this year’s enormous Brazilian coffee crop. This year, pickers harvested 36.5 million, 60-pound bags of coffee, the most in 11 years.

The abundant supply has pushed prices on near-term coffee futures in New York down 19% in the last year to 98.6 cents a pound, although the price spiked 4.85 cents, or 5.2%, Friday on speculation that a weekend frost will damage trees in part of Brazil, the world’s largest grower.

But at elite coffeehouses, declining commodity prices have had little impact, Holly said. As coffeehouses have proliferated in Europe and global demand has risen for premium coffee beans--grown worldwide from Indonesia to Kenya--many producers of top-quality coffee beans have avoided discounting.

“Because we operate in such a high-quality tier, you cannot categorize us in the same category as the lowest-common-denominator institutional grade coffee,” said Martin Diedrich, chief coffee officer and founder of Irvine-based Diedrich Coffee Inc., the nation’s second-largest specialty coffee chain. “Some of those coffees aren’t even hinged on the commodities market directly.”

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Cheaper Coffee

This year’s bumper crop of coffee beans in Latin America pushed coffee futures down, prompting price breaks on top-selling brands Folgers and Maxwell House. Near-term coffee futures in New York, in dollars per pound:

Friday: 98.6 cents

Source: Bloomberg News