The No.1 Threat To Starbucks: Coffee Prices Soar

Commodities & Metals

Published: August 23, 2010 6:25 am

Last Updated: August 23, 2010 9:30 am

Starbucks (NASDAQ: SBUX) has made a remarkable recovery. Earnings rose in the last three quarters. Cost savings driven by 12,000 layoffs and hundreds of store closings in 2008 have significantly helped margins.

Starbucks shares have rallied from $8 about a year-and-a-half ago to $24. The firm said its expectations for the balance of the year are good.

The one major hurdle Starbucks faces is coffee prices. The company may hedge these and have long-term contracts. Nonetheless, coffee prices have hit a 12-year high and storms that could hit coffee-producing nations Vietnam and Mexico may push them even higher.

Starbucks has diversified into selling food and music. It has also launched a line of sugar frappe drinks. But coffee is still the staple of its in-store sales, Via instant product, and grocery distribution operation. The economy and better management may be offset by global markets in the one element on which Starbucks most depends.

Douglas A. McIntyre

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