February 19, 2013 / 4:07 PM / 7 years ago

UPDATE 2-Smucker cuts Folgers coffee price, 3rd time since 2011

* Smucker lowers Folgers, Dunkin’ list price by 6 pct

* Arabica futures down 55 pct from 2011 peak

* Smucker has cut coffee list prices by 17 pct in 1-1/2 years

By Marcy Nicholson

Feb 19 (Reuters) - Top U.S. packaged coffee maker J.M. Smucker Co cut retail prices on its flagship brand, Folgers, and on most of its packaged coffee for the third time in 1-1/2 years on Tuesday, setting the stage for other roasters to follow suit.

The retail price cuts are relatively modest compared with how steeply the raw-product market - in this case, arabica coffee - has fallen. Arabica, one of the types of coffee that is roasted for brewed blends, is now at its lowest level in 2-1/2 years.

On Tuesday, Smucker reduced the list price for most of its packaged coffee products sold in the United States by an average of 6 percent, effective immediately. The cuts, mainly affecting the well-known Folgers and Dunkin’ Donuts brands, are due to “sustained declines in green coffee costs,” the company said in a release.

Smucker, based in Orrville, Ohio, is often the trendsetter for coffee prices in the United States. A spokesman for Kraft Foods Group Inc, maker of Maxwell House coffee, told Reuters in an email that it had “no news to share at this time” when asked about coffee price changes.

Arabica coffee futures trading on ICE Futures U.S. have tumbled by 55 percent from the 34-year high above $3 per lb reached in May 2011. On Tuesday, the market closed at the lowest level in more than 2-1/2 years, down 1.3 percent on the day at $1.3840 per lb.

Arabica coffee is typically purchased when the beans are green, and then roasted and blended for brewing.

Both Smucker and Kraft lowered prices on many of their U.S. coffees by an average of 6 percent in August 2011 and then again in May 2012. Both times, Kraft’s price change followed a move by Smucker within days.

Smucker’s three consecutive retail coffee price cuts tally up to a 17 percent price decrease, a fraction of the more than 50 percent drop since the futures market fell from its 2011 peak.

“Movements in single commodity prices do not necessarily mean supply chain margins improve or worsen to the same degree,” said Matt Incles, strategic insights manager at Leatherhead Food Research in Leatherhead, United Kingdom.

“A whole host of factors influence production costs throughout the supply chain such as the performance of other commodity items such as energy, movements in foreign exchange rates, labor costs, length of production chain, competition dynamics and the ability to pass increased costs on to consumers.”

In its fiscal 2013 third-quarter results released on Feb. 15, Smucker said the majority of the lower green coffee costs “offset the unfavorable impact realized earlier in the year. On a year-to-date basis, the net impact of lower prices and green coffee costs has been relatively neutral to segment profit.”


The less-expensive robusta coffee, which has traditionally been processed into instant coffee, has increasingly been used as a lower-costing option in brewed blends, analysts have said.

This shift took place as arabica coffee futures prices more than doubled in an 11-month rally that ended in May 2011 at a 34-year high of $3.0890 per lb. In response to the price surge, roasters raised prices four times, with Smucker increasing its list prices by some 38 percent between May 2010 and May 2011.

The price of robusta, which is seeing increased global demand, is down only slightly from its previous highs.

“While arabica prices have certainly come off quite significantly the past couple of years, robusta prices haven’t,” said Keith Flury, senior analyst for Rabobank in London.

“The outlook for robusta is potentially fairly bullish, meaning that a share of their coffee purchases haven’t necessarily gone down as much and might go up in the coming months.”

Robusta coffee futures trading on the London exchange Liffe settled down 0.6 percent at $2,044 per tonne on Tuesday, down only 23 percent from their highs reached in March 2011 at $2,672 per tonne.

“Certainly there was an increase of usage in robusta,” Flury said, noting the arabica rally pushed its premium over robusta futures to nearly $2 per lb.

“I think there was a lot of shifting out of arabica into robusta, and shifting of blends because of that.”

Last week, this premium dropped to around 43 cents per lb, the lowest in four years.

While the list price for Dunkin’ Donuts brand bagged coffee sold in grocery stores went down with Smucker’s announcement, Dunkin’ Brands’ global public relations director, Michelle King, said this “has nothing to do with our Dunkin’ Donuts restaurants.”

The Dunkin’ Donuts franchisees are responsible for their own pricing decisions, King added.

Calls and emails to other major U.S. roasters were not returned.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below