Starbucks raising U.S. drinks prices next week

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 Starbucks logo is seen outside a coffee-shop in New York's Times Square March 15, 2007. Starbucks Corp. will raise prices at its U.S. coffee shops by about 9 cents a drink next week to help offset rising costs for commodities such as milk and energy, a spokesman said on Monday. REUTERS/Shannon Stapleton

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.

“There will probably be some grumblings initially, but at the end of the day I think people aren’t going to change their pattern of buying,” said Morningstar Inc restaurant analyst John Owens.

The latest increase affects drinks made behind the counter and is effective July 31 at Starbucks’ 6,300 company-owned stores in the United States, Borrman said. Licensed stores control their own prices, but are expected to follow the move, he added. There are about 3,500 licensed Starbucks stores in the United States.

The prices of bottled drinks, whole bean coffee and food are unaffected.

Starbucks shares rose 47 cents to close at $28.17 on Monday on Nasdaq. The shares after hours were down two cents each at $28.15.