Starbucks Company Analysis

The inoculate Fair Trade coffee beans which satiate consumers ' morning desire for a pick-me-up as well as bettering the lives of the growers begin their journey in the Northern highlands of Sumatra in the Indonesian Island chain. Trader Joe’s Fair Trade Organic Sumatra Coffee beans are grown on the small Indonesian island of Sumatra in the tropical South Pacific. Rather than being produced on large Multinational Corporation owned-and-operated plantation style coffee farms, this global commodity begins its journey from creation to consumption on small, several acre large plots owned, operated, and harvested by small-scale farmers in the

Coffee is not just a drink. It’s a global commodity. Multinational coffee companies now dominate the industry worth over $80 billion, making coffee the most valuable trading commodity in the world after oil. While we continue to pay for our lattes and cappuccinos, the price paid to coffee farmers remains so low that many have been forced to abandon their coffee fields. This conundrum is most evident in no place other than Ethiopia, the birthplace of coffee.

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There is an excessive demand and cost for gasoline nowadays, coffee is believed to be the following utmost exchanged product in the global market place succeeding to oil. Coffee is developed way more than fifty nations in a stretch everywhere around the equator and offers an income for more than twenty million growers. Overall, estimation is about one hundred million societies universally that are included in the spreading, releasing, interchanging and selling of the production. During 2001, coffee growers and farms created around fifteen billion pounds of coffee whereas the global market place merely acquired thirteen billion pounds. The overstock in the coffee business is not a typical mechanism and is one of the

Coffee is a commodity enjoyed all over the world. Bistros in Paris to large franchise chains in the United States; the fact is people love coffee. Take a look at the causes for shifts in supply and demand for one

The price volatility of coffee has significant consequences on the lives of those who depend

Coffee is one of the most profitable and most traded commodities on the planet. It is second in trade to that of oil and gas. There are so many issues that surround this product, otherwise known as black gold. Coffee growers typically only get around three cents from over $1.50 cup of coffee that is sold in the United States. The world surrounding coffee is not fair. There are so many problems that arise because of its lack of fair trade. According to the United Nations, women do around two thirds of the work are only rewarded five percent of the world’s income and own less than one percent of the world’s real property. Coffee is a luxury food that many people take for granted and because of that, a large portion of coffee growers and their workers are exploited leading to the lack of fair trade.

I feel as though since the coffee shop is locally owned they will have a solid reputation and have the loyalty of all the locals. Café Campesino currently works with 18 small farmer organizations in 9 distinct, coffee producing countries. Their trading partners are farmer cooperatives, local organizations founded and democratically governed by the farmers themselves. These trading partners include Bolivia, Colombia, Democratic Republic of Congo, Ethiopia, Guatemala, Mexico, Nicaragua, Peru, and Sumatra. There is a high demand for coffee. Statistics show that household ownership of single-cup brewers reached an all-time high of 27% in 2015, that is almost double of what is was in 2014. The younger generations are more likely to go out to purchase coffee than brew it their self. The coffee consumption for ages 18-39 is 45-46%. 34% of those drink at premium places such as Starbucks, Coffee Bean, and would also include Café Campesino, and the total amount of money spent on specialty coffee in the U.S is $18 billion dollars. Most purchased coffee certifications (exclusive purchase, regular, or occasional purchase) are organic at 25%, fair trade at 18%, and rainforest alliance at 16%. Coffee is typically wanted more in the mornings, but is also wanted throughout the day by some. There are many direct competitors such as Starbucks and Coffee Beans which are more specialty coffee shops such as Café Campesino. These coffee shops will have the same premium price as Café Campesino

The world in terms of development is divided in two, which is known as the ‘North-South divide’ this shows a separation between developed and developing countries. This separation is caused by economic, social and environmental factors, economy being the clearest and most prominent influence. For many countries in the Global South coffee is their main income, and as a result is highly important to their economy. For instance if coffee decreases in price then farmers will not earn enough surplus to keep their farms and what follows is a life of poverty. The following are the world’s top exporters in coffee (as of July 2016, in thousands 60kg bags):

Most coffee growing regions are also home to some of the most delicate ecosystems on earth, therefore it is imperative that the money being profited from this luxurious treat is trickling its way back down to support, not only the workers, but the environment as well. Unfortunately, it has not. In an article titled, “How Green is You Coffee?” writer Michael Jenner clearly depicts just what exactly is happening and how it is hurting our planet earth. “The biggest source of environmental damage where coffee is concerned comes during the production of the beans themselves. The global surge in demand has had a profound effect on the growing methods used with massive implications on sustainability” (2015.) The use of shaded canopy trees allowed the beans to grow naturally and provide a habitat for indigenous species. It also prevented topsoil erosion and erased the need for any use of chemical fertilizer. As soon as market demands grew this organic growing process soon changed to a quicker and more profitable form of agriculture better knows an ‘sun cultivation.’ “Originating in the 1970s, sun-grown coffee is produced in plantations, with no forested canopy, which has resulted in fertilizers becoming a necessity and has had a seriously detrimental effect on biodiversity” (Jenner 2015). WWF recently made the

Threats • • • • Customers demanding fair-trade and organic coffee. Big chain coffee shops dominating the market. Economic issues and crisis Lack of ownership of primary resources e.g. Coffee farming.

The company that I am writing about is Starbucks, the international coffee shop chain. The company's financial statements for this analysis are from the FY2011 Annual Report and 10-K. The company has 10787 stores in the United States, of which 38% are franchised and the remainder are company-owned. The franchise model is more common when the company operates internationally. There are 6216 Starbucks stores internationally and of these 63% are franchises, with just 37% company-owned. The franchise model for international expansion has been utilized to help Starbucks expand quickly in foreign countries and to mitigate foreign political risk and to ensure that the product/service offering is tailored to local tastes (Thompson, 2012). The company is now in the process of buying back some overseas franchise stores in order to retain more profits for itself (Franchise Press, 2011). This paper will take a look at the company's most recent annual report to analyze the financial statements.

These factors together have driven the price in the first months of 2002 down to a 100-year low. The global retail market value for certified sustainable coffee was in 1999/2000 around US$ 455 million. By including non-certified products, sold with a sustainability label, the figure reaches US$ 530 million. Approximately 15-18 million pounds of certified organic coffee were exported globally, and including the trade of non-certified organic coffee, the amount is 21.2 million pounds. Sustainable coffee gives a considerable price premium to the farmer. The willingness of the consumer to pay extra for products that are produced in an environmentally and/or socially sustainable way is transferred to a premium for the producer. The total world production of coffee is estimated to reach 117 million bags in 2002/2003, while the world consumption will only reach 108 millions bags. With an oversupply of 8 million bags, the future market for conventional coffee is problematic and there is a large incentive for entering niche markets (PROCAFE 2001). The US National Coffee Association considers that sustainable coffees are important niches, but does not believe that it can be applied to the whole industry (Nelson 2002). The sales of organic products in Europe are, however, increasing by 23% per year and the WTO has

Starbucks is one of the leaders in the coffee house industry. This is possible because Starbucks is the leading purchaser of coffee worldwide. Despite this, the coffee house market as a whole must be aware of possible future volatility in coffee bean production. According to Philip Ross at the International Business Times, Arabica beans, which are 75% of the coffee produced worldwide, are expected to fall by up to 25% in some regions of the world. This is in part to the rising temperatures that those regions are facing. This will affect world prices, and as a result corresponding demand for the same.

“We take a comprehensive approach to ethical sourcing, using responsible purchasing practices; farmer support; economic, social and environmental standards; industry collaboration and community development programs. The cornerstone of our approach is Coffee and Farmer Equity (C.A.F.E.) Practices, one of the coffee industry’s first set of sustainability standards, verified by third-party experts. Developed in collaboration with Conservation International (CI), C.A.F.E. Practices has helped us create a long-term supply of high-quality coffee and positively impact the lives and livelihoods of coffee farmers and their communities.”