March 31, 2015 / 7:09 PM / 3 years ago

Dollar roils Europe, Canada coffee roasters still reeling from drought

NEW YORK, March 31 (Reuters) - Last year, it was drought. This year, the U.S. dollar’s relentless rise has forced some retailers in Europe and Canada to hike coffee prices, caving in to severe cost pressure even as concerns grow about declining demand.

German discount supermarket chain Aldi South “had no option” but to raise prices in its home market after costs went up, due in part to the euro’s drop against the dollar, the company said.

At Aldi South stores, customers are paying 3.49 euros ($4) for a 500 gram bag of extra, ground coffee, up 6 percent following a hike last month, it said in a statement.

That is the highest in almost three years, said Frankfurt-based retail analyst Matthias Queck.

Germany’s second-largest coffee roaster, Tchibo, raised prices on some of its 500 gram units by 20-30 euro cents on March 2, spokesman Arnd Liedtke said. He did not give sales prices, but described the dollar’s move as “exceptional”.

Liedtke said it was too early to tell what impact the price hike would have on sales, but that the company was monitoring it closely.

“Whenever you change prices, the effect on volume can be extreme either way,” he said.

The greenback’s rise against the Canadian dollar was a factor behind Tim Hortons’ decision to raise prices at its more than 4,500 stores in Canada and the United States late last year, a source familiar with the situation said.

A spokeswoman for Hortons, owned by Restaurant Brands International, confirmed the rise, citing rising operational costs and coffee prices.

Arabica futures have plunged nearly 40 percent from 2-1/2 year highs in October, providing relief to many roasters’ margins.

But the sudden surge in the dollar meant roasters in countries outside the United States did not benefit as much from the drop-off in futures prices, which lost 20 percent in dollars in the first quarter of 2015, but just 10 percent in euro terms.

The hikes also come after companies like Kraft Foods Group Inc, the maker of Maxwell House coffee, and J.M. Smucker Co, which sells Dunkin’ Donuts brands, implemented price hikes last year that hurt sales as customers shifted to cheaper private-label brands.

That move came after green coffee prices nearly doubled in just over four months as a severe drought parched crops in top-producer Brazil.

$1 = 0.9307 euros Reporting By Luc Cohen; Editing by Josephine Mason and Gunna Dickson

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