Highland Coffee Case Study

GMCR’s warns of the potential impact of the price of coffee on the gross profit margin. To combat this, GMCR had made a number of purchase commitments to ensure an adequate supply of coffee (GMCR Annual Report, 2010). The market price for coffee is impacted by numerous factors including weather, economy, and competition. It is vital that GMCR continue to take proactive measures to secure against unforeseen spikes in coffee prices. The price of coffee does not only impact GMCR’s ability produce coffee for the Keurig brewer under its namesake but impacts their partner suppliers as well. GMCR purchases coffee from brokers, farms, estates, and cooperative groups and essentially diversifies its coffee supply, reducing some supply risk (GMCR Annual Report, 2010).

Coffee has not only impacted the world socially, but it provides financial means for many countries who export their coffee beans.

Starbucks is an American coffee company and coffeehouse chain which founded in Seattle and Washington from 1971, Starbucks already operated more than 20000 locations worldwide. (Starbucks Coffee Company, 2016) As one of the bestselling coffeehouse chain, Starbucks need to find a long term corporation supplier to provide coffee beans. Costa Rican coffee beans are considered among the best in the world. (Kummer, 2003)

Furthermore, forecasts of unreasonable weather can raise fears that crops would be damaged and that production would fall. Such forecasts can also result in pushing cocoa prices to go up. For instance, it is not uncommon that because of the frequent dry weather that hit West Africa in past years, speculations of re-occurrence of another weather dry seasons would persist. Rossingh (2007) reported the following: Drier than usual winds this year in West Africa, where 70 percent of all cocoa beans are grown, prompted the International Cocoa Organization in London last month to increase its forecast for a global supply shortfall this year. Global production will drop 7.5 percent to 3.44 million tons while demand will rise 1.7 percent to 3.55 million tons, the group said May 31. (p.15) Similarly, unfavourable weather is an underlying determinant of cocoa’s market supply. Unfavourable weather will cause a slow and cut down of production of cocoa crops, reduce the available supply of cocoa in the market and cause the entire supply curve to shift leftward, resulting in a spike in cocoa prices at smaller quantities in the market. Political Instability, Civil Unrest or Strikes Political unrest also contributes to the cocoa price equation. Ivory Coast, the global leading supplier of cocoa beans, can be drawn as a good example of how political

Bargaining power of Suppliers - The specialty coffee industry threatens to promote the price of the beans in the production of coffee. The suppliers as small to medium-sized family-owned farms typically drive the price up by selling their crops to processors in the local markets, thus raising the consumer price (Porter, 1998).

It is a globalised world. Being a part of this progressive society, growth is a key indicator of success. Global Trade is one such benchmark that differentiate nations and economies. Every nation has some policies to promote the strengths of their trade globally. Likewise, Colombia has been known to be the third-largest producer of coffee after Brazil and Vietnam (in terms of volumes produced) from a long-time. Coffee is the world’s most traded commodity and most of it is produced by the small-scale farmers. Hence, globalisation has had a great impact on its production as well as trade. Therefore, Colombia’s strength lies in the production of coffee but also promoting their strengths and honing them globally to their benefit. Coffee is not just a cash crop for the Colombians but it’s a way of life for them. The farmers associated with the credulous society of small scale coffee growers called National Federation of Coffee Growers of Colombia (NFC) (1) was founded in the year 1927.

The strategies that are proposed in this clip for changing this situation are for coffee growers to adapt to the fair-trade market. Under the fair-trade market coffee growers will have the chance to a decent market price that will help increase their production.

Scientists say that global warming is the official cause of this reappearing disease. All countries in South America have seen a 30% drop in their production numbers the past 2 years. In Guatemala, there have been reports of starvation in the children of coffee producers due to the industry failing from the disease. 750,000 people living in Nicaragua depend on coffee to survive. It is 20% of the GDP. The government is very worried and predicted that 80% of the land used to grow coffee will not be useable by 2050 because of the rising

Sick explains this by stating that the farmers are forced to deal with mother nature problems whose source is the continuing global warming that is getting worse by the day (194). Over the years, there has been a lot of environmental degradation in Central America especially as evidenced with the depletion of the tropical rain forests that attract rainfall. Consequently, the region has experienced the creation of microclimates and weather conditions that are immensely unpredictable. The consequence is a situation where the conditions do not support the growth of coffee and thus the need for higher investments such as the use of

And finally, on February 1st, Starbucks Coffee Company opened its first store in Vietnam at the New World Hotel in downtown Ho Chi Minh City. The company has studied Vietnamese market since 1991 and made VERY, VERY careful steps when entering this market. The only partner licensed to operate Starbucks stores in Vietnam is Coffee Concepts Vietnam, a subsidiary of Hong Kong Maxim’s Group. The signing with Coffee Concepts Vietnam will maximize the growth potential of Starbucks in Vietnam as the partner has experience in managing 130 stores in Hong Kong and China. Starbucks’ strategy is to bring unique coffee experience to customers at its stores. Besides, Starbucks will boost the localization of stores in its business strategy in Vietnam to make Starbucks stores the third destination for local people, following their home and office. “Starbucks provides much more than just the best cup of coffee, we will offer a place where people come together, connect with family and friends and celebrate the local Vietnamese coffee culture and heritage”, said Jinlong Wang, President of Starbucks Asia Pacific. Now let us begin our SWOT analysis. One of my team members, Lan Huong, is going to show you some strengths of Starbucks Coffee Company.

The coffee industry has proven there is a never-ending shift of global power through the global economy. Thus, through the history of coffee, it is apparent that factors involving the globalization process such as absolute advantage and comparative advantage have had an impact

Assuming that the demand and supply for premium coffees are in equilibrium, the price will be at a constant, without significant pressure from the market. If Starbucks introduced the world to premium blends, this would cause a positive shift in the demand curve. There a higher equilibrium price and higher quantity when demand increases and supply remain unchanged. As prices increase, and the market moves to a new equilibrium, we will see higher wages, more advances and investments in technology and infrastructure, and greater competition. As production become more efficient and competition becomes greater, supply will increase and cause prices to settle back down. There are several factors that will impact the long-term equilibrium, such as changes in supply. For example, if a hard freeze eliminated Brazil’s premium coffee crop, this would cause a negative shift in the supply curve. Assuming demand remains constant a negative shift in the supply curve will cause quantity to decrease and equilibrium price to increase. Research shows that in 2011 a frost occurred in Brazil's southeastern coffee growing belt. Traders worried that next year's yields could be hurt. At the same time, heavy rains during harvest forced Columbia to reduce its crop estimate for 2011. Understanding the impact of problems along the supply chain and how the changes in supply

graph: yearly price fluctuautionsThe weather can destroy coffee crops. The chart shows how world coffee prices suddenly rose as a result of serious damage to the Brazilian coffee crops (20% of the world's coffee) in 1975 (frost), 1984 (drought), and 1994 (frost). When prices are high, small farmers often plant more coffee bushes, in the hope of making a little more money. However, if a lot of farmers plant more coffee, there is a problem when the plants start to produce coffee beans about three year later.

The supply of coffee is affected by weather conditions, and the health of coffee trees. According to the article "Coffee Industry to Adopt New Pricing Plans," the major players in the coffee industry have seen profits decline because of over-crowding of the market. An over-crowded market will give the coffee suppliers bargaining power. As Broadway Cafe demands high quality coffee and there is no availability of substitutes for the coffee beans that Broadway Cafe use. Therefore, the bargaining power of supplier increases.

Raw Materials (Coffee Beans): Coffee bean farming is not vertically integrated into Starbucks; the company purchases coffee beans from farmers. Starbucks choose to outsource farming due to the low potential hold-up problem. For its coffee, Starbucks uses only high-quality Arabica beans, instead of regular commodity and lower quality robusta beans. Since there are a lot of market participants trading Arabica beans (i.e. farmers & Arabica beans buyers), there is an established market price. Moreover, farm land has a low degree of asset specificity, and therefore farmers’ investments do not depend only on Starbucks as