Coffee prices are heading higher at the supermarket and possibly at your local Dunkin' Donuts. Nigel Travis, CEO of Dunkin' Brands (DNKN), parent company of Dunkin' Donuts and Baskin-Robbins, tells The Daily Ticker that "coffee prices will go up a little bit in our stores, but not by much. We see other people increasing [the price] because of upward pressure."
J.M. Smucker (SJM) announced last week that it would raise coffee prices by an average of 9% for its Folger and Dunkin' Donuts supermarket brands - the first increase in three years. (J.M. Smucker has a licensing agreement with Dunkin' Brands). Prices for Kraft Foods Group's (KRFT) Maxwell House and Yuban roast and ground coffee brands jumped an average of 10% on June 6.
These price increases are not surprising given recent developments in the coffee market. The price of Arabica coffee futures spiked nearly 90% in late April over concerns that a drought in Brazil would cause a smaller coffee crop and reduce global supplies (Brazil is the top grower of coffee beans). It usually takes a few months before retail coffee prices match the trend in the futures market. The Wall Street Journal reports coffee futures may have peaked now that prices have slumped 20% from their April highs.
Travis says his company would rather take a hit on margins than drastically raise the price of its coffee products. He points out that some franchise owners may even choose to hike the price of a doughnut or a breakfast sandwich before marking up coffee prices because coffee "is where the war is fought."
There are nearly 11,000 Dunkin' Donut restaurants in 33 countries.
Dunkin' competitor Starbucks (SBUX) does not plan on raising coffee prices because it has "locked in prices" for fiscal 2014 and "roughly 40% of its needs for 2015," according to Reuters.
Dunkin' Brands' first-quarter profit totaled $23 million, or 21 cents per share, down from $23.8 million, or 22 cents per share, a year earlier. U.S. same-store sales rose 1.2% in the last quarter. The Canton, Massachusetts-based quick service retailer blamed cold winter weather for weak first-quarter earnings.
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