Starbucks hiking prices despite falling costs

NEW YORK Starbucks (SBUX) wants a little extra change for that latte.

The Seattle-based coffee company says it's hiking prices on average by 1 percent nationally, starting on Tuesday. But it says the price for many drinks, such as medium and large brewed coffees and Frappuccinos, won't change in most of its 11,000 U.S. cafes. For a small brewed coffee, the price will increase by 10 cents at most. Other drinks could increase by more than that. "Less than a third of beverages will see a small increase in most stores," said Lisa Passe, a Starbucks spokeswoman. She noted that the increases will vary by region and may apply to different drinks.

Depending on the market, Starbucks Corp. notes it's the first price hike most customers will have seen in about two years.

The price hike comes despite falling coffee costs that have boosted the company's profits. In the last quarter, Starbucks cited lower coffee costs for a stronger operating margin, which represents the money it pockets from sales after subtracting what it pays to keep stores running.

And those lower coffee costs are expected to continue padding its bottom line.

Earlier this month, a Janney Montgomery Scott analyst issued a note to investors saying Starbucks is likely to benefit from lower coffee costs for the next few years. Based on the price of a coffee contract at the time, Mark Kalinowski estimated that Starbucks would pay about half the $1.4 billion it did for coffee in 2012. But Starbucks notes that coffee represents just one of its many costs and historically has accounted for less than 10 percent of overall store expenses.

Passe said other expenses include rent, labor, marketing, equipment and other ingredients such as milk and sugar.