The 14% increase is attributed to smaller crops and rising U.S. demand.
Competitors are expected to follow.
By Jerry Hirsch
Times Staff Writer
December 10, 2004
If the best part of waking up is Folgers in your cup, morning may soon set
you back a little more.
Citing the high cost of coffee beans, Procter & Gamble Co.
on Thursday boosted the wholesale price of a 13-ounce can of ground Folgers
by 14%, to $2.28, which probably will translate into higher prices on
supermarket shelves.
As it is, there has already been an 11-cent-per-cup price hike at
Starbucks Coffee Co. shops.
With about a third of the market, Folgers is the top-selling brand of ground
coffee in the U.S. Other roasters are expected to follow its lead with
higher prices.
"Once a major guy goes up, everyone follows," said Pedro Gaviña, president
of Vernon-based F. Gaviña & Sons, which owns the Don
Francisco brand.
Gaviña said a 14% jump in the wholesale price probably would add only a
penny or two to a cup of coffee brewed at home. Some java junkies might not
care.
"Considering a Starbucks is $3 a pop, paying a little more for a can of
coffee in the supermarket is not going to be a big deal," Georgia Cross said
as she carried a latte from a Starbucks to a Ralphs in a Seal Beach shopping
center.
Folgers blamed the price increase on the rising cost of green unroasted
beans on world commodity markets.
Since hitting a low of 59 cents a pound in August 2002, the price of
Colombian Mild Arabica beans on the New York Board of Trade has climbed
steadily to almost 96 cents last month.
Bean prices are rallying for several reasons.
For one, the U.S. Department of Agriculture and industry analysts have
downgraded their expectations for the size of Brazil's crop. The South
American nation is the world's largest coffee grower and changes in its
production can have a dramatic effect on world coffee prices, said Judy
Ganes Chase, who operates a commodities research firm in Katonah, N.Y.
Elsewhere, agricultural officials in Vietnam, the world's second-largest
coffee grower, said that a drought followed by flooding would slash the crop
by as much as 30%.
And in Central America, years of soft prices have driven many growers out of
business, Gaviña said, which has reduced bean supplies.
At the same time, large commodity investment funds have jumped into coffee,
believing that it's undervalued, said Nick Nickols of NK Commodity Brokers
in Los Angeles. That has increased demand for futures contracts and driven
prices upward.
Consumer demand is another factor. After years of decline, coffee drinking
is starting to increase in the United States, according to the USDA.
In 1963, Americans drank an average of three cups a day; that fell to just
1.5 in 2003 but will rise to 1.64 this year, the USDA estimates.
All told, Americans spend about $19 billion annually on coffee — everything
from the can of Folgers at the grocery store to the double espresso at
Starbucks, according to market research firm Packaged Facts.
Folgers had held off on raising prices in hopes that bean prices would fall,
and out of fear of losing market share. Its last increase was 25 cents to $2
a can two years ago, and Thursday's 28-cent increase was its steepest since
1997.
The roaster tried a backdoor boost this year when it slashed the amount of
promotions and discounts used to market its coffee, said Tonia Hyatt, a
spokeswoman for Folgers. But the brand's market share began to flatten when
competitors didn't follow along.
Now several smaller roasters plan to raise their prices. And many others are
thinking about it.
"We are still evaluating our position," said John Simmons, treasurer of
Farmer Bros. Co., a Torrance-based provider of coffee to
restaurants and institutional food services. "This type of dramatic cost
increase usually results in higher selling prices."
Kraft Foods Inc., which owns Maxwell House, declined to
comment.
Analysts expect higher prices to find their way onto store shelves, though
how quickly is anyone's guess. Hyatt said supermarkets mapped out their own
strategy on when, or even whether, to pass the expense on to consumers.
Daymond Rice, a spokesman for Vons, the Southern California division of
Safeway Inc., declined to comment except to call the price
question "an industrywide issue." Albertsons Inc. also
declined to talk about its coffee pricing strategy. A spokesman for
Kroger Co.'s Ralphs stores didn't return calls.
Shares of Cincinnati-based Procter & Gamble rose $1.35 to $56.38 on the New
York Stock Exchange and gained 50 cents more in after-hours trading.
Copyright 2004 Los Angeles Times
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