Starbucks to Raise Prices. WHY!!

Starbucks Corp. is raising brewed-coffee prices in some regions to offset its higher costs.

The Seattle chain said Tuesday it is raising prices an average of about 1% in the Northeast and Sunbelt regions, including such cities as Boston, New York, Washington, Atlanta, Dallas and Albuquerque, N.M.

Starbucks didn't give details on all the areas where prices will increase but said most southern states are included. Prices won't rise in California and Florida.

Starbucks has raised prices in its cafes annually since the recession began, though the company said its increases have been "far less" than those of its rivals.

Starbucks will face higher commodity costs than some of its competitors in the coming months. The chain made contracts to buy coffee for the fiscal year that began in October because prices were rising and Starbucks wanted to eliminate the volatility of buying on the spot market. But the market for coffee soon fell, and Starbucks was stuck paying more than it would have otherwise.

Over the past couple of years, Starbucks has topped the industry in sales and been able to manage commodity inflation, "not with pricing, but with a more efficient cost structure and strong traffic growth," Chief Financial Officer Troy Alstead said in November when the company reported earnings.

Because the chain's high-end consumer base is less sensitive to prices than that of some rivals, Starbucks has said it didn't think increases would affect customer purchases, even in a struggling economy. Some chains, especially fast-food restaurants that focus on low prices, risk losing customers when prices rise.

Starbucks shares rose 43% last year. The stock fell 73 cents, or 1.6%, to $45.29 in 4 p.m. composite trading Tuesday on the Nasdaq Stock Market.

The latest change, which was reported earlier by Reuters news service, raises the cost of a "tall," or 12-ounce, coffee in some New York City stores by 10 cents to $1.85. Not all sizes will see price increases.

Starbucks isn't raising prices for packaged coffee sold at its cafes or at grocery stores. That's where Starbucks faces the greater pressure on profit margins, largely because coffee represents a bigger portion of the cost of its packaged goods than of brewed coffee.

"Our retail stores have more levers in the rest of the [profit-and-loss statement] to pull to help overcome that coffee cost," Mr. Alstead said in November. "It's a very healthy margin business, even with coffee costs where they are."

Starbucks last year raised prices of packaged coffee 17% at its cafes and 12% at grocery stores.