Why rising coffee prices won’t change what you pay for Starbucks drinks

The cost of coffee is increasing. However, it won’t affect how much you pay for a cup of coffee at Starbucks.

Higher input costs have prompted businesses across the board to raise their prices to their customers. The cost of household goods is higher. Will cereal boxes diminish in size, or will costs increase?

Restaurants ranging from Chipotle (CMG) to McDonald’s (MCD) have all raised menu pricing recently.
Coffee is the most recent item to increase in price due to supply limitations caused by recent severe weather in Brazil. Arabica coffee futures hit a high point this week for the first time since 2014.
“The coffee market’s volatility has no bearing on retail pricing plans, and our pricing strategy has not changed,” a Starbucks spokeswoman told CNN Business.

Because of its purchasing strategy, Starbucks (SBUX) is able to avoid boosting costs for customers, CEO Kevin Johnson noted during a Tuesday conference call discussing earnings.

Starbucks has used a variety of strategies to ensure that it can buy coffee beans at a “attractive price,” according to Johnson. According to Johnson, these include pre-ordering coffee and locking in pricing.
“Normally, coffee chains are hedged far ahead of time,” said Carlos Mera, head of Rabobank’s agro commodities markets unit and an expert on coffee pricing. “However, the length of coverage” differs from company to company.

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