Starbucks says no price hikes planned

LOS ANGELES/NEW YORK Tue Aug 17, 2010 1:02pm EDT

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LOS ANGELES/NEW YORK (Reuters) - Starbucks Corp (SBUX.O) has no plans to hike prices, even though higher coffee costs are expected to weaken profit in the upcoming fiscal year, the company said on Tuesday.

The world's biggest cafe chain repeated its fiscal 2011 profit target of $1.36 to $1.41 a share, which includes an expected hit of 4 cents primarily from higher coffee prices. Starbucks' 2011 fiscal year begins October 5.

Starbucks, other restaurant companies and packaged food makers are feeling the pinch of higher prices for ingredients like coffee, wheat, dairy and beef. But they are hard-pressed to raise prices since consumers are still feeling the pain of a weak economy and high unemployment.

Starbucks told Reuters it plans to navigate the volatile market without hiking prices on things like lattes and drip coffee.

Spokeswoman Trina Smith said Starbucks has been monitoring coffee prices for some time and it currently does not have plans to raise prices.

Starbucks shares were up 2.6 percent to $24.43 in afternoon trading on the Nasdaq.

Benchmark December arabica futures -- currently the benchmark "C" contract -- have jumped more than 30 percent since June 9, hitting $1.8290 per pound on Monday, the highest level in more than 12-1/2 years.

The "C" contract trades on ICE Futures U.S. (ICE.N) and is the world benchmark for arabica coffee.

Physical coffee sales use the "C" contract as a guideline, so depending on the quality of the beans, buyers either pay a discount or premium to that.

Starbucks has long-term relationships with farmers, traders and co-ops and has bought the majority of its coffee for its upcoming fiscal year, spokeswoman Sanja Gould said.

"We are contracted well into fiscal 2011," she said.

"For many years, Starbucks has diversified its coffee procurement into multiple coffee-growing regions, and we remain confident in our ability to manage this dynamic effectively," the company said in a statement.

Mass-market coffee sellers recently raised prices on their well-known grocery brands.

Top U.S. packaged coffee seller J.M. Smucker Co (SJM.N) on August 3 raised prices for most of its Folgers, Dunkin' Donuts, Millstone and Folgers Gourmet Selections coffees in the United States by an average of 9 percent, citing higher green coffee prices.

Kraft Foods KFT.N quickly followed with U.S. price hikes on select Maxwell House and Yuban ground and instant coffees.

(Reporting by Lisa Baertlein in Los Angeles and Marcy Nicholson in New York; additional reporting by Ben Klayman in Detroit; editing by John Wallace)

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