Smucker Cutting Coffee Prices, Citing Decline In Green CoffeeFutures

Smucker Cutting Coffee Prices, Citing Decline In Green CoffeeFutures

--J.M. Smucker cutting prices by average of 6% on Folgers, Dunkin Donuts
coffees
--Cites decline in green coffee costs as reason for decline
--Price cuts could prompt response from Kraft, Starbucks

J. M. Smucker Co. (SJM) is cutting prices on Folgers
and Dunkin Donuts bagged coffee, electing to use the recent pullback in green
coffee prices to chase market share rather than pad margins.
Smucker on Tuesday said it is cutting coffee prices on its brands by an
average of 6%, a move coming after a year in which the company raised prices a
total of 23% due to rapidly rising costs.
Smucker appears to be the first major coffee roaster to cut prices, which
could put pressure on competitors like Kraft Foods Inc. (KFT), which owns
Maxwell House, and Starbucks Corp. (SBUX) to respond by either lowering prices
or increasing promotions. A Kraft Foods spokeswoman, Bridget MacConnell, said
the company has not announced any price cuts on coffee.
Starbucks Chief Executive Howard Schultz, speaking on CNBC Tuesday, said that
the coffee giant has locked in its coffee inventory for all of 2012, a long
buying period that ensures stability but doesn't benefit as much when costs
fall. Schultz said Starbucks will look at cutting prices on some items, and
will rely on its loyalty program to offer customers deals.
"We are looking for certain ways we can lower [prices on] certain items,"
Schultz said.
Smuckers tends to buy green coffee in 18 to 22 week intervals, Smucker
President Vincent Byrd said on the company's June earnings call, a shorter time
frame that allows it to adjust prices based on costs. The strategy can force
the company to raise prices faster when costs increase, but allow it to take
advantage of declines.
Smucker's price cuts come as consumers face a fresh batch of economic jitters
over debt concerns in the U.S. economy and the prospect of a prolonged economic
weakness. Food manufacturers, who have been raising prices in the face of
higher costs, have expressed caution about the ultimate pushback from
consumers.
Coffee makers have been among the more aggressive players in raising pricing,
as they've been under pressure over the past year as green coffee prices rose
rapidly. Starbucks, for instance, in May increased retail prices 17% on bagged
coffee sold in its cafes.
But recently, they've gotten a break. Benchmark arabica coffee futures on
IntercontinentalExchange have fallen 21% since hitting a 14-year peak above $3
a pound in early May, as concerns over supplies waned during Brazil's harvest.
Prices could fall even further, analysts say, when other major growers in Latin
America start their harvests in the last quarter of this year.
Smucker shares fell 1.2% in early trading to $75, but are up more than 14%
year to date.