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Dairy costs force Starbucks to raises prices again
By Melissa Allison
McClatchy Newspapers
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SEATTLE — This week, caffeine addicts will pay an average 9 cents more for a cup of coffee at Starbucks, partly because of the rising price of the milk and whipped cream.

The increase was unexpected, given how infrequently the Seattle chain has raised prices. The last increase, which averaged a nickel, came less than 10 months ago.

Before that, Starbucks hadn’t raised prices since an 11-cent increase in 2004.

The company cited rising prices “inside the supply chain,” including higher dairy, fuel and energy expenses.

Dairy costs, in particular, have hurt several of the nation’s largest food companies in recent months.

Starbucks said last month it would have trouble reaching the high end of an 87 to 89-cent-per-share profit range for fiscal 2007, largely because of rising milk costs.

Chocolate giant Hershey and milk processor and distributor Dean Foods have lowered their earnings guidance because of rocketing milk prices.

Starbucks’ price increase goes into effect Tuesday. While some customers shrugged at it, others bristled.

“If they raise it, I’m not going to go there, even if it’s only 9 cents,” said Mindy Albert of Wallingford, Wash.

It’s not the money so much as the idea of two price increases in a row, she said. With Starbucks’ buying power, “you’d think they’d be able to keep costs down.”

The price increases will vary by region and drink. They apply only to brewed coffee and other beverages that baristas make behind the counter, and not to drinks sold in bottles.

Starbucks doesn’t disclose how much milk it buys for the lattes, Frappuccinos and other milk-heavy drinks it serves.

Dairy farmers received a minimum of $1.79 a gallon for drinkable milk in July, up 68 percent from December based on minimum prices set by the U.S. Department of Agriculture. Experts cite the higher price of feed and higher demand for milk.

Consumers have seen the impact at the grocery-store level. Whole milk cost about $3.80 a gallon in July, up 25 cents from June and 60 cents from December, according to a survey by an Agriculture Department agency.

Dairy farmers don’t see most of the increase, said Amanda St. Pierre, a Vermont dairy farmer and member of Dairy Farmers Working Together, a nonprofit that wants dairy-price stability.

Eight years ago, dairy farmers received about 50 percent of the retail price of milk. Now they get less than 30 percent, St. Pierre said.

Retailers, including Starbucks, don’t need to raise prices for short-term fluctuations in their dairy costs, she said. “When we get less for our milk, your prices don’t go down.”

This summer, Starbucks began switching the standard milk it uses in all its U.S. and Canadian stores from whole to reduced fat.

Because 2 percent milk costs less — about 10 cents a gallon less at retail — the switch could save Starbucks a lot of money. Officials will not say how much.

Shares of Starbucks have traded between $25.22 and $40.01 over the past year and are down 20 percent this year.

Nicole Miller Regan, an analyst at Piper Jaffray, which makes a market in Starbucks stock, called the price increase “a defensive measure.”

“This is offsetting dairy, which is sky high.”

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Reader comments on this story - 12 total

Note: All views and opinions expressed in reader comments are solely those of the individual submitting the comment, and not those of the Pantagraph or its staff.

To Thanks Ethanol Farmers wrote on Aug 1, 2007 8:25 AM:

" The "handouts" don't raise the price of corn. These Deficiency Payments only come into play when the market price goes down to a certain trigger price. If anything, they increase supply by creating non-market incentives to produce. Please reserve your comments for a topic you know something about. "

Farmer To Thanks Ethanol Farmers wrote on Aug 1, 2007 8:11 AM:

" Farmers don't set the price of milk. (Farmers are price takers, not price makers.) Dairies set the price of milk. Transportation costs are impacting food costs more than corn prices. It's easier for retailers to point the finger at farmers, though, since they think the consumer will accept that excuser more easily. "

yo wrote on Jul 30, 2007 9:00 PM:

" like the prices were not high in the first place!! "

Theo wrote on Jul 30, 2007 3:38 PM:

" I'll give it a try, Jon. Thanks for the tip. "

jon wrote on Jul 30, 2007 10:49 AM:

" Theo, have you ever tried Speedway? It's good too, and after 6, the 7th is free. "

Theo wrote on Jul 30, 2007 10:42 AM:

" jon: McDonalds does have decent hot coffee; you're right about that. However, I drink iced coffe and McDonalds iced is the worst. Starbucks makes a very good iced coffee, but I have found that Dunkin Donuts iced coffee is actually better. I'm talking about real iced coffee, not the oversweetened girly man drinks, like "Frappachino." "

jon wrote on Jul 30, 2007 9:31 AM:

" Micky D's coffe is the best and much more affordable, of course there is no status achieved by drinking McDonalds. Only good coffee to enjoy. "

Thanks Ethanol Farmers wrote on Jul 30, 2007 9:00 AM:

" You've managed to increase the price of corn with your desire for handouts, now we all get to suffer increased prices for everything. (For the Republicans and other slow types, cows eat corn. Cows make milk, so yes, this is a relevant complaint.) "

LittleMac wrote on Jul 30, 2007 8:11 AM:

" Well, if you're addicted to caffeine, you should pay the true costs. Caffeine addicts can just be thankful that the caffeine Hysterics haven't yet discovered this particular group of 'sinners'. "

Leon wrote on Jul 30, 2007 6:36 AM:

" Why is it news when Starbucks raises its prices a few cents? Why is this even in the newspaper? I heard that Burger King got new floor mats at one of its locations. Will that also be in the news? "

Oh well wrote on Jul 30, 2007 6:07 AM:

" Infinity plus nine cents is still infinity. Do you know what we need to curb ridiculously-high priced, mediocre coffee? Machines for the home that can brew it cheaply and conveniently. Oh, wait... "

Joe wrote on Jul 30, 2007 3:47 AM:

" This story is only about a week old. WTF? "
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