But the tide may well be turning. Green
coffee futures prices have declined nearly 14% from
their May 3 peak. The decrease caused J.M. Smucker
(SJM) to cut the list price of its coffee products sold
in the U.S., such as Folgers and Dunkin' Donuts, an
average of 6%, it announced Aug. 16.
Kraft Foods (KFT) soon
followed suit with a net decrease of 6% in the price
of coffee in its U.S. on brands including Maxwell House
and Yuban, effective Aug. 22.
Van Winkle expects other mainstream
rivals to cut prices as well. He also expects lower
bean prices to lead to better margins for coffee roasters
"Demand is strong, and thus lower
input costs, even with offsetting lower retail prices,
is a net positive," he said in an email.
That healthy demand has to do with the
popularity of coffee, which has enabled coffee roasters
and retailers to thrive, despite the economy.
"It's clear consumers still consider
their cup of coffee as something they're not willing
to give up," said Darren Tristano, executive vice
president at Technomic, a restaurant industry consulting
He says consumers go in for the quality,
variety of flavors and types of specialty beverages
coffee chains have to offer.
Overall, he adds, the coffee chains
have been doing a good job of marketing and selling
more than just specialty beverages with items such as
snacks and dessert.
He cites Starbucks, which features everything
from tarragon chicken salad and turkey sandwiches to
very berry coffee cake, in addition to its wide array
of specialty coffee flavors and variety of drinks.
In addition to serving up strong sales
and earnings, global same-store sales increased a healthy
8% from a year earlier, driven by a 6% rise in traffic
and a 2% gain in the average ticket.
Green Mountain has enjoyed a long-running
winning streak. The main driver of its business lies
in its Keurig unit, which makes single-cup brewing systems
for offices, homes and hotel rooms.
Its brewing system combines a pressurized
hot-water brewer with varieties of portion packs called
K-Cups. Green Mountain sells the K-Cups separately.
The company offers more than 200 varieties of coffee,
tea and other beverages in K-cups.
Keurig brewers have been piping hot.
In 2010, Keurig was No. 1 in coffee maker dollar share
across all retail channels in America, according to
research firm NPD Group.
Green Mountain's specialty coffee arm
produces, markets and sells coffee, tea, hot cocoa and
other beverages in its K-Cups as well as whole bean
and ground coffee in bags and packs sold mainly to wholesale
channels such as supermarkets.
The continuing consumer adoption of
the Keurig brewing system helped propel growth in the
third quarter, says spokeswoman Suzanne DuLong. Roughly
82% of the quarter's sales were from the Keurig brewing
system and its recurring K-Cup sales. The remainder
came from bagged coffee and sales from its office coffee
Also, during the quarter, the company
had ramped up K-Cup production capacity, which helped
it fill some pent-up demand from the prior two quarters
when capacity was constrained.
K-Cup sales popped 136%. Van Winkle
credits the big jump in sales to the company's improved
ability to meet K-Cup demand.
This year, Green Mountain signed pacts
to add Starbucks and Dunkin' Donuts coffee to the K-Cup
It started selling the Dunkin' Donuts-branded
K-Cups in Dunkin' Donuts restaurants the first week
Starbucks coffee K-Cup portion packs
will be available in grocery stores and specialty retailers
in the U.S. starting in November, it was announced Tuesday.
They'll be available in Canadian stores in March 2012
and through Starbucks' and Green Mountain's websites
It plans to have the packs at Starbucks
stores in the U.S. and Canada in late 2012.
"Green Mountain will certainly
get an incremental boost from selling K-Cups for a major
brand like Starbucks," said Van Winkle. "The
real payoff is what the Starbucks brand can do for consumer
adoption of (Keurig) brewers."
He raised his estimate of brewer shipments
for 2012 by almost 1 million brewers as a result of
the Starbucks brand being available in the portion pack.
Starbucks plans to build sales of its
branded K-Cups to $1 billion over time, said Jeff Hansberry,
president of Starbucks Global Consumer Products group
in a statement.
Tristano says making its brand available
in K-Cups is one way Starbucks is competing with consumers
making coffee at home.
It remains to be seen how a prolonged
soft patch in the economy will impact coffee roasters.
Van Winkle says the impact on coffee in general is going
to be lower.
"It's not going to derail the adoption
phase of Keurig brewers," he said.
He notes that when the economy rolled
over at the end of 2008, it didn't impact the growth
rate of Keurig brewer sales.
"I don't think it will change this
time around," he adds.
Tristano says the trends are likely
to remain positive for the coffee chains.
But the jury is still out on the direction
bean prices will take in the near term.
Shawn Hackett, president of Hackett
Financial Advisors says roasters' recent price cuts
were "premature" and they may well have to
reverse that later in the year and get prices back up
He expects bean prices will go much
higher heading into the later part of the year, when
supplies will be "record tight."