Greg Farrell in New York and Javier Blas in London report for the Financial Times that the company behind some of the most popular coffee brands in the US on Tuesday became the first to raise its retail prices after wholesale costs hit a 12-year high.
JM Smucker, which distributes the Dunkin’ Donuts, Millstone and Folgers coffee brands to US retailers, said the 9 per cent price increase would be effective immediately.
Kraft, which markets Maxwell House coffee, declined to comment.
Coffee prices hit a 12-year high on Monday of more than 180 cents per pound on the back of low supplies of premium Arabica coffee from Colombia after a string of poor crops in the Latin American country.
Wholesale Arabica coffee prices have surged 30 per cent since early June.
The London-based International Coffee Organisation said recently that the “current tight demand and supply situation” was “likely to persist in the near to medium term”.
Coffee industry executives believe wholesale coffee prices could rise further before the arrival of the new Brazilian crop later this year. “Until October it is going to be tight on high quality coffee,” said a senior executive at one of Europe’s largest coffee roasters. He added: “The industry has been surprised by the scarcity of high-quality beans.”
The wholesale price of other agricultural commodities – including wheat and cocoa – has also risen sharply, opening the door for food companies to increase retail prices in the short term.
So far, none of the major US coffee shop chains, including Starbucks and Dunkin’ Donuts, have announced plans to alter their pricing.
Starbucks, in particular, is sensitive to the prices it charges. Two years ago, following a string of lacklustre earnings announcements, Howard Schultz returned to the company as chief executive and closed underperforming stores and launched a massive renovation programme for existing stores. One aspect of the renovation involved the company’s “pricing architecture”. In response to the perception that a cup of Starbucks coffee cost $4, the chain lowered the prices of some of its offerings.
Tim Hortons, the Canadian chain of coffee houses, which has a large presence in the US, said the chain “books its coffee contracts for at least six months at a time, which protects its restaurant owners and customers from jumps in worldwide future markets”.