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

New York (CNN Business) – Coffee prices are on the rise. But that won’t affect the price of a cup of coffee at Starbucks.The increase in input costs It has led companies in all sectors to charge their customers more. The home furnishings are more expensive. The cereal boxes are shrinking while prices are maintained or increased. And restaurants, from Chipotle to McDonald’s, have increased the prices of their menus.

Coffee is the latest product that has become more expensive due to a shortage of supplies, due to the recent bad weather in Brazil. This week, Arabica coffee futures reached their highest price since 2014.

“Volatility in the coffee market has no impact on retail pricing plans, and our pricing strategy remains unchanged,” a Starbucks spokesperson told CNN Business.

Starbucks is able to avoid rising prices for customers because of its buying strategy, Chief Executive Officer Kevin Johnson explained during an earnings call with analysts Tuesday.

Starbucks has employed a number of tactics to make sure it can buy coffee beans at an “attractive cost,” Johnson said.

Among them, buying the coffee ahead of time and setting prices, Johnson said.

“Typically, coffee chains are covered well in advance, but the length of coverage” varies from company to company, said Carlos Mera, who heads Rabobank’s agricultural commodities markets team and is an expert in coffee prices.

For Starbucks, short-term volatility could end up offering an advantage, Johnson said.

“It gives us a significant advantage over our competitors who, if they don’t buy that far in advance, they certainly won’t have that cost structure that we put in place,” he explained.

Some competitors are less sure that rising input prices will not affect what consumers pay.

JDE Peet’s, which has a broad coffee portfolio that includes Peet’s Coffee, Stumptown and Intelligentsia, said in a statement that “in the last 12 months we have seen a sharp increase in ingredient, transportation and other costs, which It will force appropriate measures to be taken, “adding that” historically, significant fluctuations in green coffee prices have been reflected in the market and we hope that this precedent will continue. ” Green coffee refers to raw and unroasted coffee beans.

The company said that “our top priority remains, as always, to provide our consumers with high-quality coffee products through our brands.”

What is happening in the coffee market?

Recently, a devastating frost in Brazil has damaged the country’s coffee plantations and could seriously reduce their supply.

“It was the worst freeze in 27 years,” Rabobank’s Mera said. The event could mean the loss of millions of bags of coffee in Brazil, he said.

The frost boosted Arabica coffee prices this week. But coffee prices were rising even before the frost for a number of reasons, Mera added, such as dry weather in Brazil, protests in Colombia and rising shipping container costs, among others.

“If these prices remain high, we will have to pass them on to consumers,” he said. But large companies have ways of keeping prices relatively stable for customers, he added.

“Most companies have some kind of risk management, so they can weather the crisis for a while,” he said, and “they may be able to delay any price increase.” Also, some beverages like cappuccinos, which use little coffee compared to other ingredients, won’t be as affected by rising coffee prices, he said.