Starbucks raising U.S. drinks prices next week

By Nichola Groom

LOS ANGELES (Reuters) - Starbucks Corp will raise U.S. prices on coffee, lattes and other drinks by an average of 9 cents a cup next week to help offset soaring costs for milk and other commodities, a spokesman said on Monday.

The widely anticipated move marks Starbucks' second price increase in less than a year and comes a month after the coffee shop chain's chief financial officer warned it would be "very challenging" for Starbucks to meet the high end of its 2007 earnings forecast, in part because of rising dairy prices.

U.S. milk prices have soared recently amid strong global demand for dairy products and higher production costs.

"We're always looking at the business costs, and given the rising cost environment in which we operate, we think this is an appropriate time," spokesman Brandon Borrman said.

The increase will vary by drink and by market, but will average out to about 9 cents a cup, Borrman said. Starbucks' last price rise of about 5 cents per drink went into effect in October.

Analysts said the increase would be welcomed by investors, who have seen Starbucks' shares fall more than 20 percent this year on concerns about higher costs, slowing U.S. sales growth and increased competition from fast-food rivals.

"I can't imagine that it comes as a surprise to anyone, but it should definitely be a positive on both sales and earnings going forward," said Dan Geiman of McAdams Wright Ragen, who has a "buy" rating on Starbucks shares.

And as with past Starbucks price increases, analysts also said consumers were unlikely to balk at paying a few cents more for their daily caffeine fix.