Coffee hedging and warehouse management help Starbucks amid global price increase

Coffee hedging and warehouse management help Starbucks amid global price increase

August 5 - 2021 Coffee Geography Magazine

With the current green (unroasted) coffee prices hike this month after unusually cold weather hit Brazil, following a drought that hampered this year's production, Starbucks gets unequivocal advantage over its competitors because of the company’s sourcing system. The company has an 18 months advance purchasing methods using complex hedging and warehouse management system.

"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," Kevin Johnson, Starbucks’ CEO explained. . "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."

Kevin Johnson, Starbucks’ CEO
Kevin Johnson, CEO, Starbucks 
Most of the major coffee companies are so far showing their intention to raise their prices to combat the unexpected surge on the cost.   "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." 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."  Despite Starbucks’ 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 tea bags, cake pops and cup stoppers to overview the retail prices in 2022.

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