Starbucks says advance coffee purchasing helps it stay competitive

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Dive Brief: Starbucks’ strategy of buying green coffee “12 to 18 months in advance” may give it a “significant advantage” over competitors amid volatile price increases, CEO Kevin Johnson said on a recent earnings call. “We have created a very thoughtful approach to how we source, warehouse and use hedging […]

Dive Brief:

  • Starbucks’ strategy of buying green coffee “12 to 18 months in advance” may give it a “significant advantage” over competitors amid volatile price increases, CEO Kevin Johnson said on a recent earnings call.
  • “We have created a very thoughtful approach to how we source, warehouse and use hedging techniques to ensure we always have supply of premium Arabica green coffee at an attractive cost basis,” Johnson said.
  • Green (unroasted) coffee prices jumped this month after unusually cold weather hit Brazil, the world’s largest coffee producer, following a drought that hampered this year’s production. The challenges are causing companies to increase prices to offset rising supply chain costs.

Dive Insight:

While CPGs and others in the coffee industry scramble due to inflation and rising green coffee prices, Starbucks is sticking with its early buying approach to secure pricing.

“I think we may be the only large buyer of green coffee that uses this approach and that will serve us well, as it gives us a significant advantage relative to our competitors, who if they don’t buy this far in advance will certainly not have that cost structure that we put in place,” Johnson said.

The coffee brand currently has more than 14 months of “price-forward coverage” to maintain prices through to the end of the 2021 fiscal year, he said.

Comparatively, beverage companies including Nestlé and Nespresso told analysts in April that they were raising prices to combat costs. Some cafes have said they have been absorbing the rising cost of the coffee beans. One cafe in Austin said it is paying $15,000 more per week for coffee and expects to pay $100,000 by fall, but it has kept prices as before for now.

But Starbucks is not ignoring others’ price changes.

“We’ve always been very thoughtful and measured in the pricing actions we take, so that we don’t inhibit growth. And I would say our spread — our pricing strategy hasn’t fundamentally changed. We are very surgical in nature,” said Starbucks CFO Rachel Ruggeri. “So through pricing … we will also continue to look at efficiencies in our supply chain.”

While Starbucks has a strong coffee supply chain, the company has experienced other shortages during the last few months with depleted ingredients, food items and products including oat milk, hazelnut syrup and chai tea bags, cake pops and cup stoppers, according to USA Today

The company is focusing on efficiencies by having its supply chain and operations teams work together to roll out automated inventory ordering, said John Culver, Starbucks group president of international channel development and global coffee, tea and cocoa.

“We are now rolling it out at 1,500 stores this past week,” he said. “It basically removes the inventory task from our store partners and … we expect that this will be fully rolled out in all company-operated stores for food and merchandize items by the end of the calendar year.”

Julie Littman, a reporter at Restaurant Dive, contributed to this article.

This story was first published in our weekly newsletter, Supply Chain Dive: Procurement. Sign up here.

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