Starbucks Morebucks

I’m sure your home town has some great little locally owned coffee shops.  Most of them do not have the “ease” of drive-through pick-up windows.  So, Starbucks becomes your easier outlet for your coffee fix. .However, when you notice the higher price for your daily Caramel Macchiato or Skinny Mocha, you might ask the cashier, “why the higher prices?” If they tell you the price of coffee beans has risen, tell them that the opposite is true.  Coffee prices have fallen, yet Starbucks has to raise their prices.

They made a bad and foolish bet in the coffee futures market.  They tried to “Make a Profit” by betting on the assumption that coffee bean pricing would rise.  It fell.  Starbucks were stuck with the higher price futures options they bet on, and you, the customer, have to pay for their gambling.

Most huge businesses try to protect themselves from market fluctuations by buying futures contracts.  It’s just unusual to only bet “one way”.

It kind of reminds one of the greedy investment banks who brought the world’s economy to its knees three years ago by buying junk derivatives that they bet would only go up.  Yeah, trees are growing to the moon, too.

A business protects itself from fluctuating prices by hedging their bets on both sides of the price structure.  The company is then protected from prices going wildly in either direction.  98% of the time, it’s a break-even proposition and the company attends to its main business of providing a good product combined with good service at a reasonable price.  I hope Starbucks learned that they are in the coffee business only, not the Wall Street games.

Meantime, maybe a little extra exercise and saving some money will re-introduce you to your local neighbor who makes a living brewing you a fine cup of coffee.


About bakoheat

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