Small roaster leads way on price hikes as coffee surges, Starbucks resists

Fri Mar 14, 2014 3:38pm EDT
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By Marcy Nicholson

NEW YORK (Reuters) - The biggest arabica coffee rally in two decades is beginning to force smaller-brand roasters to quietly raise wholesale prices, even as top names such as Starbucks Corp (SBUX.O: Quote) resist.

One private-label roaster in the New York area is set to raise its prices by 10 percent to 15 percent within the next few weeks, according to a person familiar with the matter who spoke on condition that the firm would not be identified.

"We can't afford to absorb the prices anymore. We need to protect ourselves," said the person, whose company runs several large industrial-scale roasting machines.

Two medium-sized roasters contacted by Reuters said they hoped the dramatic rise in prices, fueled by drought in top grower Brazil, would taper off before they were forced to lift prices. But if it doesn't, they said, higher prices may be the only way to stave off significant losses.

The price of arabica coffee futures, the type used primarily in roast and ground brews, surged 80 percent in less than seven weeks on Wednesday, rising above $2 per lb in the biggest such rally since July 1994.

Major U.S. roasters, by contrast, have thus far held the line, some saying that their exhaustive hedging strategies mean they could ride out the rally without increasing prices.

Many have not changed their list prices since February 2013, when Folgers maker J.M. Smucker Co (SJM.N: Quote) and Maxwell House maker Kraft Foods Group KRFT.O dropped them by around 6 percent. In May 2013, Starbucks Corp (SBUX.O: Quote) cut grocery list prices by at least 10 percent but raised the price of some of its beverages in U.S. company-operated cafes by as much as 10 cents a month later.

From February through November, arabica prices fell by around 25 percent to a five-year low near $1 per lb, but the large roasters did not reduce their retail list prices, although some offered retail discounts.   Continued...

Barista Carlos Lopez of Nicaragua participates in the World Barista Championship in Bogota June 3, 2011. REUTERS/Fredy Builes