Supermarket prices for coffee are heading upward in the wake of frost damage to coffee growing areas in Brazil.
While the full extent of the damage had not yet been disclosed, major roasters Procter & Gamble and Kraft General Foods' Maxwell House raised their list prices on Folger's and Maxwell House, respectively, last week. Industry experts said hikes in supermarket shelf prices for canned coffee are sure to follow, and may affect the specialty coffee segment as well.
They added, however, that consumption is not likely to drop substantially, unless retail prices continue to rise dramatically over a period of several weeks.
Judith Ganes, analyst with Merrill Lynch, New York, told SN she expected retail prices to climb by about 15%. "Prices for now won't likely go high enough to see substantial drops in consumption," Ganes added. "What we will get is some initial hoarding, leading perhaps to some shelf stock situations."
"Roasters' prices had already begun to edge up, so that is only going to accelerate now," said Tom Pirko, president of Bevmark, a beverage consulting firm in New York. "The real question on prices is how much and how fast they will go up. In the canned segment, the last thing they need is a substantial price increase."
Pirko added that the effect on the fast-growing specialty coffee business in supermarkets may be dramatic, with shakeouts of a large number of roasters likely.
As news of unexpected frost damage filtered up from Brazil, the world's largest coffee producing country, futures prices for July delivery shot up by more than 25% last Monday, the market's largest jump in about eight years.
P&G reacted immediately, instituting a price hike of 40 cents for every 13 ounces of coffee sold in its 13-, 26- and 39-ounce cans. By Wednesday, Kraft raised its list prices accordingly; its 13-ounce regular Maxwell House ground coffee, for example, went up 35 cents.
"At this point, the price movements we are seeing are virtually unprecedented," said Mike Nugent, senior vice president of Dean Witter in San Francisco. Other roasters were expected to follow the leaders, said analysts.
At midweek, Brazil suspended exports temporarily to take stock of losses from what was being called the worst frost in 20 years.
Exporters initially estimated that between 4 million and 9 million 60-kilogram bags may have been damaged; the frost will affect the 1995 harvest, but current worldwide supplies have already been tight.