Folgers’ Wholesale Hike May Stir Rivals

If the best part of waking up is Folgers in your cup, morning may soon set you back a little more.

Citing the high cost of coffee beans, Procter & Gamble Co. on Thursday boosted the wholesale price of a 13-ounce can of ground Folgers by 14%, to $2.28, which probably will translate into higher prices on supermarket shelves.

As it is, there has already been an 11-cent-per-cup price hike at Starbucks Coffee Co. shops.

With about a third of the market, Folgers is the top-selling brand of ground coffee in the U.S. Other roasters are expected to follow its lead with higher prices.

“Once a major guy goes up, everyone follows,” said Pedro Gavina, president of Vernon-based F. Gavina & Sons, which owns the Don Francisco brand.

Gavina said a 14% jump in the wholesale price probably would add only a penny or two to a cup of coffee brewed at home. Some java junkies might not care.

“Considering a Starbucks is $3 a pop, paying a little more for a can of coffee in the supermarket is not going to be a big deal,” Georgia Cross said as she carried a latte from a Starbucks to a Ralphs in a Seal Beach shopping center.

Folgers blamed the price increase on the rising cost of green unroasted beans on world commodity markets.

Since hitting a low of 59 cents a pound in August 2002, the price of Colombian Mild Arabica beans on the New York Board of Trade has climbed steadily to almost 96 cents last month.

Bean prices are rallying for several reasons.

For one, the U.S. Department of Agriculture and industry analysts have downgraded their expectations for the size of Brazil’s crop. The South American nation is the world’s largest coffee grower and changes in its production can have a dramatic effect on world coffee prices, said Judy Ganes Chase, who operates a commodities research firm in Katonah, N.Y.

Elsewhere, agricultural officials in Vietnam, the world’s second-largest coffee grower, said that a drought followed by flooding would slash the crop by as much as 30%.

And in Central America, years of soft prices have driven many growers out of business, Gavina said, which has reduced bean supplies.

At the same time, large commodity investment funds have jumped into coffee, believing that it’s undervalued, said Nick Nickols of NK Commodity Brokers in Los Angeles. That has increased demand for futures contracts and driven prices upward.

Consumer demand is another factor. After years of decline, coffee drinking is starting to increase in the United States, according to the USDA.

In 1963, Americans drank an average of three cups a day; that fell to just 1.5 in 2003 but will rise to 1.64 this year, the USDA estimates.

All told, Americans spend about $19 billion annually on coffee -- everything from the can of Folgers at the grocery store to the double espresso at Starbucks, according to market research firm Packaged Facts.

Folgers had held off on raising prices in hopes that bean prices would fall, and out of fear of losing market share. Its last increase was 25 cents to $2 a can two years ago, and Thursday’s 28-cent increase was its steepest since 1997.

The roaster tried a backdoor boost this year when it slashed the amount of promotions and discounts used to market its coffee, said Tonia Hyatt, a spokeswoman for Folgers. But the brand’s market share began to flatten when competitors didn’t follow along.

Now several smaller roasters plan to raise their prices. And many others are thinking about it.

“We are still evaluating our position,” said John Simmons, treasurer of Farmer Bros. Co., a Torrance-based provider of coffee to restaurants and institutional food services. “This type of dramatic cost increase usually results in higher selling prices.”

Kraft Foods Inc., which owns Maxwell House, declined to comment.

Analysts expect higher prices to find their way onto store shelves, though how quickly is anyone’s guess. Hyatt said supermarkets mapped out their own strategy on when, or even whether, to pass the expense on to consumers.

Daymond Rice, a spokesman for Vons, the Southern California division of Safeway Inc., declined to comment except to call the price question “an industrywide issue.” Albertsons Inc. also declined to talk about its coffee pricing strategy. A spokesman for Kroger Co.’s Ralphs stores didn’t return calls.

Shares of Cincinnati-based Procter & Gamble rose $1.35 to $56.38 on the New York Stock Exchange and gained 50 cents more in after-hours trading.