Kraft follows Smucker and cuts coffee prices

NEW YORK Tue Aug 23, 2011 6:08pm BST

Wal-mart private-label store brand Great Value's Macaroni and Cheese products are pictured next to Kraft's inside a new Walmart Express store in Chicago July 26, 2011. REUTERS/John Gress

Wal-mart private-label store brand Great Value's Macaroni and Cheese products are pictured next to Kraft's inside a new Walmart Express store in Chicago July 26, 2011.

Credit: Reuters/John Gress

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NEW YORK (Reuters) - Kraft Foods Inc KFT.N dropped the list price of its flagship coffee brand Maxwell House in the United States by roughly 6 percent, effective August 22, a spokeswoman said on Tuesday, following rival and trendsetter J M Smucker Co's (SJM.N) lead.

Smucker, the top U.S. packaged coffee maker, cut its coffee prices by the same amount on August 16 for most of its brands, including its flagship Folgers as well as Dunkin' Donuts branded coffee that it is licensed to sell. It was the first major roaster to do so after 15 months of price increases within the industry, and the move was seen as putting pressure on its rivals to follow suit.

Kraft's net decrease includes its flagship brand Maxwell House as well as Yuban, and equates to 20 cents per lb equivalent on roast and ground coffees, and 2 cents per ounce on instant coffees, Kraft spokeswoman Bridget MacConnell said in an email.

Gevalia, the Maxwell House International line of specialty soluble beverages and the Tassimo line of coffees are not included in this price change.

Arabica coffee futures trading on ICE soared to a 34-year high in May at $3.0890 per lb, more than doubling during the steady 11-month rally. Prices surged on a combination of tight supplies of washed arabica beans and speculative buying.

The market since dropped around 20 percent, with the December contract up 0.9 percent at $2.7080 per lb at 5:28 p.m. British time.

"We evaluate the various market factors and make our pricing decisions when it's appropriate for the business," MacConnell said, when asked the reason for the price decrease.

Both Smucker and Kraft raised their list prices for coffee four times between May 2010 and May 2011, with Smucker's increase for shoppers during this time reaching a total of approximately 38 percent. For Kraft, the total increase was roughly 56 percent.

Roasters across the board, such as Starbucks (SBUX.O), Green Mountain Coffee (GMCR.O) and Nestle's (NESN.VX) premium portioned coffee brand Nespresso, passed along the rising costs of beans to shoppers over a 15-month period.

One veteran coffee dealer in New York viewed Kraft's price decrease an effort to get more market share after Smucker, whose coffee is viewed as a similar quality and are both sold in grocery stores.

"Someone sees the same product, one is cheaper than the other, someone will buy it," the dealer said.

Shares of Smucker were up 0.8 percent at $68.33 by 5:23 p.m. BST and Kraft shares were up 0.2 percent at $33.61.

(Editing by Andrea Evans)

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