Cup of Starbucks going up average of 11 cents Oct. 6

Yesterday, the Seattle coffee retailer said that its beverages at more than 4,500 company-operated stores in the United States and Canada will increase by an average of 11 cents per cup Oct. 6. The company's 12-ounce tall latte ranges from $2.25 in Minnesota to $3 in New York City.

Shares of Starbucks fell 66 cents yesterday to close at $44.38 on the Nasdaq Stock Market.

The company said its price increases will be the first since August 2000. Prices will be about 3 percent higher, Smith Barney analyst Mark Kalinowski estimated. Starbucks would not disclose the average price of its beverages.

Starbucks executives said earlier this month that they would raise prices by year's end. Coffee prices have jumped 36 percent in the past year, and sugar prices have surged 39 percent. Starbucks sales at outlets open at least 13 months rose 8 percent in August, the first gain of less than 10 percent in 10 months.

The switch will not affect prices for Seattle's Best Coffee, which is also owned by Starbucks, said Starbucks Corp.'s Alan Hilowitz. In an e-mail, he said the companies do not share strategies or information.

At Tully's, which has about 100 coffeehouses in the United States, founder and Chairman Tom O'Keefe said the cost structure, which includes cups, lids, rent and coffee, for his Seattle company is similar to Starbucks'.

He has noticed a trend of increased business costs over the years, and his company reviews prices frequently.

"If we see the need to raise prices, we will. But if we don't, we won't," he said. "There aren't imminent plans."

Joe Monaghan of Seattle's Caffe Vita Coffee Roasting Co. agreed that costs have increased over the past few years, especially for his independent company.

He noted that gas prices, which affect roasting and transportation, as well as the raw product, have risen. The last time his company raised prices, he said, was in early 2002, when customers started paying an average of 5 cents more per cup.

He added his company offered a punch card in which customers who bought eight cups received one for free. But instead of raising prices, the company stopped that service last week.

Eric Flintoff, president of Kent-based Medosweet Farms Inc., called the price increases justified, saying that lattes require a high amount of milk.

"I think as far as the milk goes, I think they're taking a huge hit," he said, referring to Starbucks.

As people in Seattle learned about the price changes yesterday, two caffeine drinkers in the International District split their views about the decision.

"They are? Damn them," said Bellevue resident Mohammad Nasir, after hearing the news.

Yesterday, the 40-year-old was enjoying a cup of Starbucks coffee that he said cost $1.64. He gave the cashier $2 and handed over the change as tip.

"They're going to lose their tip," he said. "I don't even like Starbucks. They're just here."

For Jeff Baines, a 26-year-old Seattle resident, the news was not surprising. He was just leaving a Tully's coffeehouse, right across from a Starbucks, and said he enjoys beverages such as vanilla lattes and drip coffee at both businesses.

"You figure there's inflation every year," he said. "I don't think it's a big deal. But if it happened a couple of times a year, I'd be a little more concerned."

The two also tossed out some price ranges that would stop them from buying caffeine.

For Nasir, it's $5 per cup. Baines thinks $2 is reasonable for a small cup of coffee.

Monaghan said he is sensitive to price increases and ensuring that his customers return.

"Historically, they have not stopped drinking coffee because of price increases," he said. "But I don't take them for granted."

P-I reporter Brad Wong can be reached at 206-448-8137 or bradwong@seattlepi.com This report includes information from Bloomberg News.

Add P-I Business headlines to