Thank you, Lew Rockwell.
Well, here I go again, coffee, my favorite subject. This time ZeroHedge has the skinny on Starbucks using lower-quality beans. Ugh!! I should have known. I knew I felt an extra jolt from the java. Is Starbucks merely serving up hot cups of instant coffee? It appears so.
An unintended consequence of the
virus-induced recession, lockdowns, and people working from home is a massive
demand shift from expensive coffee beans, commonly found at Starbucks, and
called Arabica, to cheap beans, found in instant coffee, called Robusta.
The chart below, a ratio
between Arabica/Robusta prices, shows how Robusta demand surged at
the start of the lockdowns. And this makes perfect sense, mainly because
Starbucks, the world's largest coffeehouse chain, uses
only "high-quality arabica coffee grown at high altitudes." So
when tens of millions of people were locked down, and many coffeehouses closed,
people were forced to buy instant robusta coffee from grocery
stores.
But even after the lockdowns ease, the economy is stuck in a
deep recession where millions of jobs have been eliminated, people are working at home, and millions of vehicles are off the road.
The shift in coffee demand is bad news for Starbucks, that's why
it announced, last month, over 400 stores will be closing in the next 18
months. The world's largest coffeehouse must shrink its corporate footprint as
the economy evolves to where workers are staying home and are reducing costs to
weather the economic storm.
The shift in demand is being seen in surging Robusta coffee
prices on ICE. In the last 19 sessions, September contracts have gone
parabolic, up 19%, hitting 1,363 on Thursday morning, or a six month
high.
The latest upswing in prices is because the virus-induced
recession is "prompting a shift in consumption toward cheaper, instant
coffee blends," reported Reuters.
"I'm
hearing demand is quite strong; there's been a switch in consumption from Arabica to Robusta. Home consumption is more Robusta intensive," one
coffee trader told Reuters.
Another coffee
trader said despite the switch, Arabica prices were rising too, mainly
because of sharp gains in the Brazilian currency.
The virus is having profound changes in the economy - one
major shift are consumers gravitating towards cheap coffee beans. This is bad
news for Starbucks and a reflection of
consumers who can no longer afford an expensive cup of Joe.
No comments:
Post a Comment