PEOPLE LOVE THIER JAVA!!

Coffee demand outstrips supply; coffee stocks up for commodity squeeze?

Posted Feb 19th 2009 6:22PM by Sarah Gilbert
Filed under: Analyst reports, Starbucks (SBUX), Kraft Foods'A' (KFT), Commodities

Coffee is set to be "one of the most promising commodities of 2009," according to a leading Swiss commodities analyst, who predicts coffee prices will rise, likely squeezing the already-decaffeinated profits at Starbucks (NASDAQ: SBUX) and Kraft (NYSE: KFT), maker of Maxwell House, among other major coffee retailers. Current prices are $1.1305 a pound, only up a 0.9% on the year, but experts predict greatly increasing costs due to declining production in Brazil and Colombia. Coffee futures are currently at $1.20 per pound for December 2009 contracts, and $1.227 per pound for March 2010 contracts.

How much price runup are we talking? It could be increasing a whopping 50% to $1.70 per pound by June 30, according to former Merrill Lynch analyst Judith Ganes-Chase, who runs a consulting firm in Katonah, New York.

Starbucks says it won't have much of an effect on the company's costs (and Starbucks does source much of its coffee through direct-trade agreements which have some insulation from the general commodity markets); the company has already noted that coffee price increases are countering the decreases in milk prices for the coming quarter. In my opinion, this news will have a greater effect on companies like Kraft and Nestle, which are set to stronger competition from Starbucks VIA instant coffee (though the product doesn't at all compete at a similar price point); Maxwell House has already gone up in price twice in the past year due to steadily rising commodity prices. However, given the packaged food sector's recent softening due to concerns over consumer buying power for convenience foods, the stock price may already reflect these concerns.

Just how bad can things get for Kraft and its competitors? Coffee prices may be only one factor in a ever-expanding list of concerns. I don't believe the coffee costs alone will have a huge impact, but their impact in a gathering storm of packaged food pressures is certainly unwelcome news for investors. I would avoid the stock, even at these historically low prices.

MORE STARBUCK'S NEWS!!!

has brewed up a new variety of coffee that could cheapen its brand aura but pull in billions in revenue.

Via, a minutely crunched bean that dissolves in boiling water, is intended to steal from the $16 billion instant coffee market outside the USA, especially Japan and the United Kingdom.

In the U.S., where instant coffee sales are about $1 billion annually, Via will go after the 65 billion cups of brewed coffee that are consumed annually.

Via will be sold in single-serve foil packets, about the size of your index finger, and packaged in an oversize matchbook. It will be available in Starbucks, Costco and Target stores in Seattle and Chicago March 3. A packet of three will sell for $2.95; a 12-pack will cost $9.95.

Chairman and CEO Howard Schultz introduced Via, currently available in Italian Roast and Colombia varieties, in New York Tuesday before media and analysts, who tasted the product.

"This is a patented process in which we have cracked the code on replicating Starbucks coffee," said Schultz, who said the product has been in the making for 20 years. Only in the past two years, he said, has Starbucks found the technology for the "micro grinding" which allows the coffee to dissovle.

The beans are sourced, roasted and brewed in the same way beans are processed for Starbucks brewed coffee, and that allows Via to taste like a regular cup of brewed Starbucks.

Playing in a downscale market won't tarnish Starbucks' premium image, Schultz says. Although the dollar-a-cup cost is cheaper than a cup of coffee brewed at a Starbucks store, it is a premium over traditional instant coffee.

A ShopRite in New Jersey for instance, sells a 19-pack of Folgers Coffee Singles for $7.59, or 39-cents a cup while Via will cost 98-cents or $1.20 a cup depending on the package size. Starbucks sells a cup of brewed coffee for about $1.60.

"We realize this is a very tough environment," Schultz said. "Who would pay a premium in this market? But for less than $1 a cup … people can have a cup of coffee that's the mirror image of Starbucks. We think it's going to be positive."

While the product is billed as "Ready Brew," TV, outdoor and Web ads by BBDO, New York, carry the theme "not instant, instant."

They show the words "not instant" written in a plain font followed by the word "instant" in bold, colorful designs to show the Via way.

"This is a clean, nice easy way to introduce it in a bold, Starbucks-ian voice," says David Lubars, chairman and chief creative officer, BBDO. Via and its advertising will be national this fall in the U.S. after evaluating the best ad mix in Seattle and Chicago.

The theme is designed to "tell consumers what the product is, not hide from it," says Michelle Gass, Starbucks executive vice president, marketing.

A giveaway of more than 2 million samples will be the "single biggest sampling push in our history," she says.

Starbucks needs to make a big push. Since the start of the year, the coffee giant has announced layoffs of 1,370 people, following results for the quarter ended Dec. 28 when sales for stores open at least a year fell 10%.

GREATEST FORM OF FLATTERY!

Starbucks follows Organo Gold's Success!

Starbucks poised to
launch 'soluble' coffee

Feb. 12, 2009

(Crain's) — Premium java giant Starbucks is venturing into what some would consider lowbrow territory with a soluble-coffee product called Via, according to three executives familiar with the matter.

Starbucks declined to comment on the launch, which is said to be a long-term pet project of CEO Howard Schultz and as such will get a significant marketing push.

Starbucks will begin testing the soluble coffee - a term that conjures up images of instant brands such as Folgers, Sanka and Brim - by selling it in Starbucks cafes as early as next month. It's unclear as yet whether the company will also extend the product to supermarkets, where it already has a presence with ground Starbucks-branded coffee.

The chain is announcing its plans next week. More information is expected to be unveiled at the company's annual meeting March 18.

starbucks - value - specialty coffee

Although the new product seems well-positioned for the current economy in which premium-priced coffee can be a tough sell, Via is not just a sign of the times. The instant product has been many years in the making and is designed to mimic the taste of store-bought Starbucks - the point the company is expected to make in its marketing for the brand.

"It's a breakthrough in soluble coffee," said a person close to the project.

Obviously they haven't tried Organo Gold!

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