Coffee is a commodity


At Starbucks, they obviously need coffee. To make sure that they get the coffee at a good price, Starbucks chose to buy the coffee fields instead of paying an advanced contract price for the coffee beans. Think of it as Starbucks who bought coffee in Cuba and that the hurricane that struck Cuba two months ago destroyed all the coffee beans. In this case, Starbucks can not sell you your latte. That would really make you shit. Starbucks knows that if they make you shit; you can never come back. Plus, if Starbucks continues to raise and lower the price of coffee sold at the store, you may be upset. But since coffee is a commodity, the price will fluctuate. And Starbucks knows, since they buy so much coffee, that they would have to guarantee the coffee and that they will then have to pay a higher price for the coffee contract.

Mr. Schultz, founder of Starbucks, a former Chicago boy and commodity trader, knows that with the volume of coffee sold by Starbucks, he enters into coffee purchase contracts at the same time. In advance, it will also increase the price of the product itself. At present, Starbucks, the end-user seller, owns 23% of all coffee plantations in the world. Are they handling the product, of course. But if they do not handle the basic product of coffee and retail the large volume of coffee they sell, they will then have a reduced profit margin. This would hurt shareholder value, quarterly earnings, and Starbucks would certainly not have announced a 37% increase in profits in the fourth quarter of 2001. Not to mention the exponential growth of stores and profits since their IPO. . You should not be surprised that Starbucks has been able to do this.

You should not be surprised that Folders coffee and other branded coffees have increased their prices in the stores. Its Starbucks owns 23% of all coffee plantations in the world, leaving 77%. Now, these other companies are competing for 77% because total coffee production available for the commodities market is 23% lower. Therefore, a simple supply and demand in the irregular weather conditions, which limit the production of a plantation, will tend to bring down prices and rise. Starbucks does not need all the coffee for its own stores, it can now sell its coffee beans in the open market to other wholesale companies. This is of course before the coffee beans actually wear the Starbucks brand. At this point, they are just the staple products of the coffee beans.

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