Starbucks fighting commodity costs

PARIS Tue Mar 8, 2011 6:01pm EST

PARIS (Reuters) - Coffee chain Starbucks Corp. (SBUX.O) is feeling the pressure from rising commodity costs and is working to offset them by keeping a flexible pricing policy, its U.S. head told Reuters late on Tuesday.

Although Starbucks has already secured coffee supplies through to end-September, other ingredients like cocoa and sugar are causing concern as supply fears fan prices, Cliff Burrows said in an interview in Paris.

"Everything from dairy to what's been happening in recent weeks to the price of oil is all adding to the pressure," he said. "We are working very hard to mitigate those commodity pressures...Whether that's moving some prices down, keeping some the same and moving some up."

Coffee and cocoa futures are trading at historic highs on the back of supply concerns and political unrest in Africa, where major cocoa exporter Ivory Coast has been paralyzed by international sanctions and the aftermath of a disputed November election that has brought it to the brink of civil war.

Welsh-born Burrows was in Paris to unveil Starbucks' new stripped-down logo, which the group is using to mark its push into packaged consumer products and non-coffee drinks. The logo was unveiled as part of the company's 40th anniversary events.

Asked whether price increases would hurt sales, Burrows said: "Even in trying times customers will still spend when they go out and walk the streets. They may not be calling in for the meal that they would have done once but they still want moments of respite."

VIA ROLL-OUT

Starbucks, which in fiscal 2010 made $2.3 billion in revenues from international markets, or one-fifth total revenue, has started to sell consumer products like Via instant coffee in non-U.S. countries like Britain, Ireland and Japan.

Via is due to hit China next, Burrows said. However, he would not comment on the timing for introducing Via to continental European markets like France and Germany.

"We will see it but I could not give you a date yet," he said. "It will depend on the reaction in markets such as China."

The group would also have to come up with a new brand name in France, where the name Via is already taken.

The focus for now is to open more stores -- in France, the group wants to open 10 to 15 per year -- in order to gain size and penetration to build the brand first, Burrows explained.

"If we were to launch (Via) in France in supermarkets it would be very limited to Paris," he said. Out of Starbucks' 59 French outlets, 55 are in the capital and outlying suburbs.

Burrows also said Starbucks had done market trials of roasted ground packaged coffee in France with retailer Monoprix (CASP.PA) and in Germany as well, but had decided against pursuing the venture. Packaged coffee is a cornerstone of Starbucks' grocery business in the United States.

"At the end of the trial we stopped it, but that does not mean there is not a market," he said.

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