Coffee Company
Connor Su (301215392)
Xiaobai Ru (301186106)
Ziqing Tang (301215541）
Top 10 Coffee Producing Countries:
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Brazil (22.5 million bags)
Colombia (10.5 million bags)
Indonesia (6.7 million bags)
Vietnam (5.8 million bags)
Mexico (5 million bags)
Ethiopia (3.8 million bags)
India (3.8 million bags)
Côte d'Ivoire (3.3 million bags)
Uganda (3 million bags)
Coffee Industry Description
• Coffee is manufactured from
green coffee beans that are
roasted to give it its
characteristic color, smell,
flavor and density.
• It is manufactured from two
major varieties of coffee beans,
Arabica and Robusta, which
have several variations.
DESCRIPTION
HEADLINES
KEY EXTERNAL DRIVER
Coffee Industry Description
•
The Arabica blend generally tends to have a
richer flavor and is considered to be of
higher quality, compared with Robusta.
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Additionally, Arabica coffee is typically
found in a majority of gourmet and
imported coffees, such as Colombian,
Ethiopian, Kenyan, Costa Rican and other
high- quality coffee imports. Comparatively,
the Robusta blend is considered to be of
lower quality and is used in most instant,
soluble and canned coffee products sold in
supermarkets and grocery stores.
DESCRIPTION
HEADLINES
KEY EXTERNAL DRIVER
Headlines
In US
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In 2014, retail volume sales of coffee in the US increase by 1%,
whilst retail value sales increase by 6%, to reach 800,730 tonnes
and US$12.8 billion, respectively
Fresh ground coffee pods continues to lead value growth, with
retail value sales up by 32% to reach US$4.0 billion
In Canada
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In 2014 retail sales grow by 19% in current value terms and 4%
in volume terms to reach C$2.3 billion and 81,000 tonnes
Fresh ground coffee pods posts the fastest retail current value
sales growth of 47% in 2014
DESCRIPTION
HEADLINES
KEY EXTERNAL DRIVER
Table 1: Retail Sales of Coffee by Category:
Value 2009-2014
DESCRIPTION
HEADLINES
KEY EXTERNAL DRIVER
Key External Drivers
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Demand from grocery wholesaling
– The Coffee Production industry is highly dependent on demand from
downstream suppliers, such as grocery wholesalers, which provide coffee
products to supermarkets.
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World price of coffee
– The world price of coffee determines coffee producers’ costs and profitability
because coffee beans are a key input commodity in coffee production
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Demand from supermarkets and grocery stores
– Coffee producers rely on favorable supply-side contracts with
downstream markets, such as supermarkets and grocery stores.
DESCRIPTION
HEADLINES
KEY EXTERNAL DRIVER
Coffee Bean Price
Coffee Bean Price
Sugar Price
Key External Drivers
•
World price of crude oil
– Most of the Coffee Production industry’s key inputs,
including coffee beans, are sourced from globally-based
coffee bean harvesters. As oil prices increase, the fixed costs
from transporting and distributing coffee or acquiring input
commodities, such as coffee beans, also rises, hampering
industry revenue. The world price of crude oil is anticipated
to decline in 2015.
•
Trade-weighted index Or Canadian-dollar effective
exchange rate index
– As the US dollar appreciates relative to other currencies,
coffee becomes less expensive for domestic consumers to
purchase from global coffee producers, which intensifies
competition for industry operators. Due to the United States
being the world’s second- largest coffee importer, the value
of the dollar significantly affects demand for coffee.
– As the Canadian dollar appreciates, coffee and tea produced
by domestic manufacturers becomes relatively more
expensive for global consumers, which hampers global
consumers’ demand for industry products.
DESCRIPTION
HEADLINES
KEY EXTERNAL DRIVER
Industry Performance
Major Products & Markets
Industry Performance
Current Performance In US :
Current Performance In Canada :
Products
In US:
In Canada:
Major Products In US
Ground roasted coffee
– Ground roasted coffee has traditionally been the largest
product segment within the industry, accounting for an
estimated 73.6% of revenue in 2014.
– This product segment is comprised of specialty and
traditional ground roasted coffee, which are expected to
account for 37.5% and 36.1% of revenue, respectively.
– Specialty ground roasted coffee includes ground espresso
beans, among other specialized coffee products, in a range of
flavors. Within this market segment, consumers are
increasingly favoring specialized ground roasted coffee
instead of traditional ground roasted coffee.
– This segment is anticipated to continue to decline slowly due
to consumers increasingly preferring to freshly grind their
coffee when preparing it at home.
Markets
US Market:
Canada Market:
Major Markets In US
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Consumers aged 60 and older
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About 76.0% of people that are 60 years or older consume coffee daily. In 2008
(latest data available), 76.0% of this age group consumed coffee on a daily basis,
which shows a stable market.
This demographic will slightly expand their coffee consumption in future years,
driven by an increasing number of baby boomers.
Notably, only 6.0% of Americans that are 60 years or older consumed espressobased beverages and 24.0% of this market segment preferred gourmet varieties
of traditional coffee.
Major Markets In US
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Consumers aged 40 to 59
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This age group has the second-highest proportion of coffee drinkers in the United
States. According to the National Coffee Association’s National Coffee Drinking
Trends survey, about 69.0% of people aged 40 to 59 consumed coffee on a daily
basis.
Comparatively, in 2008 (latest data available), 66.0% of this demographic
consumed coffee on a daily basis.
During the past five years, this market segment has slightly curbed their demand
for coffee products, which can be attributed to growing competition of alternative
caffeinated beverages.
Major Markets In Canada
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Grocery stores and supermarkets
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Grocery stores and supermarkets make up an estimated 42.1% of industry
revenue.
Over the past five years, the number of grocery stores and supermarkets in Canada
has declined, which has allowed this major market to strengthen its ability to
negotiate low cost coffee and tea products.
Exports
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In 2014, industry exports are expected to account for 40.7% of industry revenue.
In particular, Canadian tea and coffee producers derive a significant share of
industry revenue from exporting products to the United States, Australia, Japan
and the United Arab Emirates. (e.g. Canadian coffee and tea producers derive a
significant share of export revenue from re-exporting industry products after the
coffee beans are roasted and ground. )
Over the next five years, exports are anticipated to account for a larger share of
industry revenue, in line with growing global demand for coffee, particularly from
the United States, which will prompt demand for re-exported industry products.
Major Companies
In US:
In Canada:
Company Shares of Coffee:% Retail Value 2010-2014
Comparison of Market Cap Among Major
Competitors
Market Share Concentration
Level (Concentration in this Industry is High)
•
The top four players in the Coffee Production industry are estimated
to account for 84.1% of total industry revenue in 2014.
Comparatively, market share has steadily increased since 2009 due to
rapid growth among the industry’s key players.
•
Market share will increase over the next five years, as key players
continue to innovate their products, build strong brand loyalty,
implement marketing campaigns, conduct joint ventures with other
key players and diversify their product portfolios with specialized
coffee products, such as coffee with sustainable coffee beans.
•
Smaller players will focus on niche markets, supplying specialty
high-value products that have shorter production runs and lower
volumes. However, large players, like Green Mountain Coffee
Roasters, will continue to find it profitable to develop a specialized,
high-value product portfolio
Starbucks Coffee
Introduction
• Starbucks is the premier roaster, marketer and
retailer of specialty coffee in the world, operating in
65 countries.
– Trade on: “NASDAQ” under the symbol "SBUX."
– Core product: coffee, tea, other beverages and
fresh food items
– Objective: maintain Starbucks standing as one of
the most recognized and respected brands in the
world
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Stock Price
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Business Segment
• Americas (including of the
US, Canada, and Latin
America)
• Europe, Middle East, and
Africa (“EMEA”)
• China/ Asia Pacific (“CAP”)
• Channel Development
• All other segments
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Revenue Components
Starbucks generate nearly all of revenues through
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INTRODUCTION
company-operated stores
licensed stores
consumer packaged goods ("CPG")
foodservice operations
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Revenue Components
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Cost Structure
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Firm Strategy
• Continuous expansion of
global store base
– Increase market share
• Offer products across new
categories and through
diverse channels
• Superior customer service
– High degree of customer
loyalty
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Financial Statement
• Consolidated Statements of Comprehensive Income
• Consolidated Balance Sheets
• Consolidated Statements of Cash Flows
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Consolidated Statements of
Comprehensive Income
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Consolidated Balance Sheets
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Consolidated Balance Sheets
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Consolidated Statements of Cash Flows
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Consolidated Statements of Cash Flows
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Risk Factors
• Economic conditions in the US
and certain international markets
• Success depends substantially on
the value of brands and failure to
preserve brand value could have
a negative impact on financial
results.
• Unauthorized access or
destruction of customer or
employee personal and financial
data
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Risk Factors
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Incidents involving food-borne illnesses, food
tampering, food contamination or
mislabelling
Unsuccessful in implementing important
strategic initiatives or effectively managing
growth
Intense competition in each of channels and
markets
Highly dependent on the financial
performance of Americas operating segment
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Risk Factors
• Increasingly dependent on the
success of CAP and EMEA
operating segments (inherent risks
of conducting business abroad)
– foreign currency exchange rate
fluctuations
– change or uncertainties in legal,
regulatory, social and political
conditions in markets
– import or other business licensing
requirements
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Risk Factors
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Increases in the cost of high-quality
arabica coffee beans or decreases in
the availability of high-quality
arabica coffee beans
Financial condition and results of
operations are sensitive
Interruption of supply chain affect
ability to produce or deliver
products
Failure to meet market expectations
for financial performance
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Risk Factors
• The loss of key personnel or difficulties recruiting and
retaining qualified personnel
• Rely heavily on information technology in operations
• Failure to comply with applicable laws and regulations
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Primary Market Risk
• Quantitative and Qualitative Disclosures About Market Risk
• Commodity Price Risk
• Foreign Currency Exchange Risk
• Equity Security Price Risk
• Interest Rate Risk
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Commodity Price Risk
They purchase commodity inputs, including coffee, dairy products and diesel
that are used in their operations and are subject to price fluctuations that impact
their financial results. They use a combination of pricing features embedded
within supply contracts and financial derivatives to manage their commodity
price risk exposure, such as fixed-price and price-to-be-fixed contracts for coffee
purchases.
The following table summarizes the potential impact as of September 28, 2014 to
Starbucks future net earnings and other comprehensive income ("OCI") from
changes in commodity prices.
Note: The information provided relates only to the hedging instruments and does not represent
the corresponding changes in the underlying hedged items (in millions).
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Foreign Currency Exchange Risk
To reduce cash flow volatility from foreign currency fluctuations, they
enter into derivative instruments to hedge portions of cash flows of
anticipated revenue streams and inventory purchases in currencies other
than their functional currency, the US dollar, as well as the translation
risk of certain balance sheet items.
The following table summarizes the potential impact as of September 28,
2014 to Starbucks future net earnings and other comprehensive income
("OCI") from changes in the fair value of these derivative financial
instruments due to a change in the value of the US dollar as compared to
foreign exchange rates.
Note: The information provided relates only to the hedging instruments
and does not represent the corresponding changes in the underlying
hedged items (in millions).
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Equity Security Price Risk
• Minimal exposure to price fluctuations on equity mutual
funds and equity exchange-traded funds
• Trading securities portfolio approximates a portion of
liability under Starbucks’s Management Deferred
Compensation Plan ("MDCP")
• Performed a sensitivity analysis based on a 10% change in
the underlying equity prices of investments
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Interest Rate Risk
• Long-term Debt
They utilize short-term and long-term financing and may use interest
rate hedges to manage their overall interest expense related to their
existing fixed-rate debt, as well as to hedge the variability in cash flows
due to changes in the benchmark interest rate related to anticipated debt
issuances. As of September 28, 2014, they did not have any interest rate
hedge agreements outstanding.
The following table summarizes the impact of a change in interest rates
as of September 28, 2014 on the fair value of Starbucks debt (in millions):
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Interest Rate Risk
• Available-for-Sale Securities
- The available-for-sale securities comprise a diversified portfolio
consisting mainly of fixed-income instruments. The primary
objective of these investments is to preserve capital and liquidity.
They performed a sensitivity analysis based on a 100 basis point
change in the underlying interest rate of our available-for-sale
securities as of September 28, 2014, and determined that such a
change would not have a significant impact on the fair value of these
instruments.
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Summary
• Interest Rates
- interest rate swap agreements to hedge the variability in cash
flows
• Foreign Currency
- forward and swap contracts to hedge portions of cash flows
of anticipated revenue streams and inventory purchases in
currencies
- forward contracts to hedge the foreign currency exposure of
net investment in certain foreign operations
- foreign currency swap contracts that are not designated as
hedging instruments to mitigate the translation risk of
certain balance sheet items
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Summary
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Commodities
coffee futures contracts and collars (the combination of a
purchased call option and a sold put option) to hedge a portion
of anticipated cash flows under our price-to-be-fixed green
coffee contracts
dairy and diesel fuel swap contracts, as well as dairy futures
and collars that are not designated as hedging instruments to
mitigate the price uncertainty of a portion of our future
purchases of dairy products and diesel fuel
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Summary
Gain and Losses on Derivative Contracts
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Summary
Changes in AOCI
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GREEN MOUNTAIN COFFEE
INTRODUCTION
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Formerly called: Green Mountain Coffee Roasters
Type: Public corporation
Traded as: NASDAQ: GMCR—S&P 500 Component
Industry: Processed & Packaged Goods
Products: Coffee & Coffee
• Keurig Green Mountain is publicly traded coffee roaster and
manufacturer of singe-cup coffee brewers and portion packs
• Offers over 100 different coffee selections, including certified
organic, Fair Trade Certified, estate, specially blends and
flavoured coffees
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INTRODUCTION
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BUSINESS
• Overview
• Strengths and Strategy
• The Products
• Marketing and distribution
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BUSINESS
• Overview
• A leader in specialty coffee, coffeemakers, teas and
other beverages in the United States and Canada
• Multi-brand beverage and brewer portfolio
• Market and sell products to retailers including
supermarket, restaurants and online
• Develop innovative new brewing systems and
beverages
• Target opportunities primarily in American and
Canadian households, food service, educational and
office locations
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BUSINESS
• Strengths and Strategy
• Primary consumer benefits delivered
• Quality
• Convenience
• Choice
• The key elements of business strategy
• Increase adoption
• Expand beverage choices
• Expand in current channels
• Launch new, innovative beverage system technologies
and platforms
• Continue international expansion
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BUSINESS
• The Products
• Portion packs – including
single-serve K-Cup, Vue®
and Rivo® packs
• Brewers and accessories – a
leader in sales of
coffeemakers in the U.S. and
Canada
• Other products and royalties
– bagged coffee and cans
and fractional packages
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BUSINESS
• Marketing and Distribution
• Customer growth in the U.S.
and Canada
• Multiple channels of
distribution
• AH channel
• AFH channel
• E-commerce platforms:
websites and social
media pages
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Financial Statement
• Consolidated Balance Sheets
• Consolidated Statements of Operations
• Consolidated Statements of Comprehensive Income
• Consolidated Statements of Cash Flows
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Financial Statement—Balance Sheets
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Financial Statement—Statements of Operations
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Financial Statement
—Statements of Comprehensive Income
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Financial Statement—Statements of Cash Flows
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Financial Statement
—Statements of Cash Flows (continued)
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Risk Factor
• Financial performance is highly
dependent upon the sales of Keurig®
Brewing systems and portion packs
• Ongoing investment in the cold
platform is risky, and could disrupt
ongoing business
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Risk Factor
• Changes in the beverage environment and retail
landscape could impact financial results
• Increased competition could hurt business
• Intellectual property may not be valid, enforceable, or
commercially valuable
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Risk Factor
• Continued innovation and the successful development
and timely launch of new platforms, products and
product extensions are critical to financial results and
achievement of growth strategy
• Obsolete inventory may result in reduced prices or
write-downs
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Risk Factor
• Consolidation in the retail channel or the loss of
key retail or grocery customers could adversely
affect financial performance.
• Price increases may not be sufficient to offset
cost increases and maintain profitability or may
result in sales volume declines
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Risk Factor
• Due to the seasonality of many of products and other
factors such as adverse weather conditions, our
operating results are subject to fluctuations
• Increases or changes in income or indirect tax rates
could have a material adverse impact on financial
results
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Risk Factor
• Laws and regulations could adversely affect our
business
• Climate change may have a long-term adverse
impact on our business and results of operations
• Litigation pending could materially impact on
business and result of operations
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Market Risk
Quantitative and Qualitative Disclosures about Market Risk
• Interest Rate Risks
• Commodity Price Risks
• Foreign Currency Exchange Rate Risk
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Market Risk
• Interest Rate Risks
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At September 27, 2014, the company had $28.4 million of outstanding
debt obligations subject to variable interest rates.
Should all our variable interest rates increase by 100 basis points, we
would incur additional expense of $0.3 million annually
Should Canadian Bankers’ Acceptance Rate increase by 100 basis points
over US Libor rates, we would incur additional interest expense of $0.9
million annually, pursuant to the cross-currency swap agreement
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Market Risk
• Interest Rate Risks
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As discussed further under the heading Liquidity and Capital
Resources the Company is party to interest rate swap agreements.
On September 27, 2014, the effect of Company’s interest rate swap
agreements was to limit the interest rate exposure on $130.0 million of
the outstanding balance of the term loan A facility under the Restated
Credit Agreements to a fixed rate versus the 30-day Libor rate
The total notional amount covered by these interest rate swaps will
terminate in November 2015.
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Market Risk
• Commodity Price Risks at September 27, 2014 (in thousands)
• The “C” price of coffee is subject to substantial price fluctuations
caused by multiple factors, including but not limited to weather
and political and economic conditions in coffee-producing
countries
• Gross profit margins can be significantly impacted by changes in
the “C” price of coffee
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Market Risk
• Commodity Price Risks at September 27, 2014 (in thousands)
• Enter into fixed coffee purchase commitments in an attempt to
secure an adequate supply of coffee. These agreements are tied
to specific market prices (defined by both the origin of the coffee
and the time of delivery) but company has significant flexibility
in selecting the date of the market price to be used in each
contract.
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Market Risk
• Commodity Price Risks at September 27, 2014 (in thousands)
• At September 27, 2014, the Company had approximately $407.7
million in green coffee purchase commitments, of which
approximately 88% had a fixed price.
• At September 28, 2013, the Company had approximately $245.1
million in green coffee purchase commitments, of which
approximately 84% had a fixed price.
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Market Risk
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Foreign Currency Exchange Rate Risk
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Foreign operations are related to Canada segment, which is subject to
risks, including, but not limited to, unique economic conditions,
changes in political climate, different tax structures, other regulations
and restrictions , and foreign exchange rate volatility.
Accordingly, future results could be materially adversely affected by
changes in these or other factors
Source green coffee, certain production equipment, and components
of brewers and manufacturing of brewers from countries outside the
United States, which are subject to the same risks described for
Canada above. However, most of green coffee and brewer purchases
are transacted in the United States dollars
Revenues are adversely affected when the United States dollar
strengthens against the Canadian dollar and are positively affected
when the United States dollar weakens against the Canadian dollar
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Market Risk
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Foreign Currency Exchange Rate Risk
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The majority of the transactions conducted by Canada segment are in
the Canadian dollar. As a result, revenues are adversely affected
when the United States dollar strengthens against the Canadian dollar
and are positively affected when the United States dollar weakens
against the Canadian dollar.
Conversely, expenses are positively affected when the United States
dollar strengths against the Canadian dollar and adversely affected
when the United State dollar weakens against the Canadian dollar
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Summary—Interest Rate
• The Company enters into interest rate swap agreements to
limit a portion of its exposure to variable interest rates by
entering into interest rate swap agreements which effectively
fix the rates
• In accordance with the interest swap agreements and on a
monthly basis, interest expense is calculated based on the
floating 30-day Libor rate and the fixed rate.
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Summary—Interest Rate
• If interest expense as calculated is greater based on the 30-day
Libor rate, the interest rate swap counterparty pays the
difference to the Company;
• If interest expense as calculated is greater based on the fixed
rate, the Company pays the difference to the interest rate swap
counterparty.
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Summary—Gain or Loss
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Summary—Gain or Loss
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