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Starbucks Corporation (SBUX), Dunkin Brands Group Inc (DNKN): Prepare for the End of the Coffeehouse Boom

That Cappuccino Is Gonna Cost Ya

Starbucks Corporation (NASDAQ:SBUX) has already seemed to guard against a potential fall in profitability by increasing certain drink prices by 1% across most US outlets. While reasons weren’t directly given by the company, other than that it will be on premium drinks like lattes for the most part, it could be a safeguard against bad quarterly earnings this fall and winter due to the expected hike in coffee bean prices. A 1% increase would hardly be noticeable to the average Starbucks customer, who typically doesn’t mind paying a little extra for the benefit of artisan coffee in a very casual coffeehouse setting. Also, for those that do mind, there will still be alternatives that Starbucks Corporation (NASDAQ:SBUX) offers, like tea, hot chocolate, and their hot apple cider in the fall months that will keep Starbucks’ profit margins healthy.

Dunkin Brands Group Inc (NASDAQ:DNKN), meanwhile, operates a bit differently. There hasn’t been an announcement yet on a beverage price increase from them yet, though they may not have to. Dunkin’ relies on selling no-frills, no-nonsense coffee and donuts to those that are on the go, so there is less demand for the artisan coffees that Starbucks tends to excel in. Also, Dunkin Brands Group Inc (NASDAQ:DNKN)’ does a lucrative business with its K-Cups through Keurig and Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) as well as selling bags of coffee beans in most supermarkets, so there is already built-in insurance against losses due to coffee price increases because they are more diverse in their product range than Starbucks is.

Another Bad Sign for Green Mountain

While not a coffeehouse chain, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) should also feel the pinch from higher coffee prices in the future. While the Green Mountain range goes far beyond coffee to include the wildly successful Keurig brewing system (of which Dunkin Brands Group Inc (NASDAQ:DNKN)’ is a contributor of K-Cups), any rise in coffee prices will still be felt by the company. Already, shares have plunged to near $73/share as the CEO is set to retire, and the potential increase in coffee prices will hit the company further. Sales for the quarter are already expected to be on the low side, with an expected July put of $77.50. However, Green Mountain has been a big moneymaker for a lot of people since the boom of Keurig, and it should weather the storm, though it is a bear at the moment thanks to a CEO shakeup and the rise of coffee prices taking a hit on the costs of making and selling K-Cups.

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