staff and news service reports
updated 7/23/2007 6:44:59 PM ET 2007-07-23T22:44:59

Starbucks said Monday it would raise its U.S. prices for lattes, Frappuccinos and other freshly  made drinks by nine cents, the second price hike in less than a year.

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The Seattle-based coffee retailer blamed rising costs for things including dairy products, energy and fuel for the increase.

In a statement issued after markets closed for regular trading, Starbucks said the price hike will take effect July 31, bumping the cost of most drinks by about 3 percent.

The cost of a 12-ounce "tall" latte currently ranges from $2.45 to $3.15, depending on location, spokesman Brandon Borrman said. The increase will vary by drink and by market, but will average out to about 9 cents a cup, Borrman said.

The move comes a month after the coffee chain’s chief financial officer warned that it would be “very challenging” for Starbucks to meet the high end of its 2007 earnings forecast, due in part to rising dairy prices.

The higher costs have also been a concern for investors, who have sent Starbucks’ shares down more than 20 percent this year.

“We’re always looking at the business costs, and given the rising cost environment in which we operate we think this is an appropriate time,” Borrman said.

Borrman said the increase will apply to coffees, lattes, frozen Frappuccinos and some tea-based drinks, including fruit and tea blends made behind the counters in all of its domestic company-operated stores.

Starbucks operates 6,300 company-owned stores in the United States, Borrman said. The approximately 3,500 licensed stores control their own prices but are expected to follow the move, he added.

The increase will not apply to bottled drinks or food.

The company's last price increase — 5 cents — took effect on Oct. 3, 2006.

The latest price increase may irk customers, but analysts said investors would welcome the news.

“I can’t imagine that it comes as a surprise to anyone, but it should definitely be a positive on both sales and earnings going forward,” said Dan Geiman of McAdams Wright Ragen, who has a “buy” rating on Starbucks shares.

As with past Starbucks price increases, analysts also said consumers were unlikely to balk at paying a few cents more for their daily caffeine fix.

“There will probably be some grumblings initially, but at the end of the day I think people aren’t going to change their pattern of buying,” said Morningstar restaurant analyst John Owens.

Information from Reuters and The Associated Press is included in this report.


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