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This article is completely wrong. If Starbucks has hedged, they aren't "losing" money on the price of coffee going up or down; their hedge pays out inversely wi

This article is completely wrong. If Starbucks has hedged, they aren't "losing" money on the price of coffee going up or down; their hedge pays out inversely with the change in operating costs due to coffee price fluctuations. Another way to illustrate this is to note that the cost part of the equation is the same regardless of what happened to coffee prices in the last year: assuming they hedged, they'd probably raise prices by the same amount had coffee been up or flat for the year, too. Another important flaw is that costs do not determine prices in this way. See this legendary Quora thread for details: http://www.quora.com/Why-is-iced-coffee-more-expensive-than-hot-coffee?q=iced+coffee http://www.quora.com/Why-is-iced-coffee-more-expensive-than-... Yet another problem is that even if costs did determine their pricing, Starbucks' big costs are real estate and labor. The markup on beans and hot water alone is staggeringly high.

eru 15y ago
> Another way to illustrate this is to note that the cost part of the equation is the same regardless of what happened to coffee prices in the last year: assuming they hedged, they'd probably raise prices by the same amount had coffee been up or flat for the year, too. Depends on what their competition is (and would have been) doing.
Lazare 15y ago
Agreed. There's so many issues with the article, it's kind of weird. As you point out, they were hedging (and so did not see their bean prices go up), and even if they had, bean prices aren't even a major cost driver. But imagine, for a moment, that coffee beans were a major cost driver for Starbucks: The article suggests Starbucks' management should not be expected to manage these costs. That's ridiculous to the point of outright laughter. In other news, Southwest execs say "damn, but there's just nothing we can be expected to do about fluctuating fuel prices" and analysts admit that Facebook "can't be expected to understand how to run large data centres; after all that's unrelated to their core business". </sarcasm>

eru 15y ago

> Another way to illustrate this is to note that the cost part of the equation is the same regardless of what happened to coffee prices in the last year: assuming they hedged, they'd probably raise prices by the same amount had coffee been up or flat for the year, too. Depends on what their competition is (and would have been) doing.

Lazare 15y ago

Agreed. There's so many issues with the article, it's kind of weird. As you point out, they were hedging (and so did not see their bean prices go up), and even if they had, bean prices aren't even a major cost driver. But imagine, for a moment, that coffee beans were a major cost driver for Starbucks: The article suggests Starbucks' management should not be expected to manage these costs. That's ridiculous to the point of outright laughter. In other news, Southwest execs say "damn, but there's just nothing we can be expected to do about fluctuating fuel prices" and analysts admit that Facebook "can't be expected to understand how to run large data centres; after all that's unrelated to their core business". </sarcasm>