Starbucks chairman sees gourmet coffee shortages

 @ibtimes
on September 07 2007 5:20 PM

Starbucks Corp. Chairman Howard Schultz on Friday predicted a shortage of gourmet coffee beans as coffee drinkers across the globe develop more sophisticated tastes.

Whilst its competitors will struggle to find the gourmet beans they need, a decade of buying from top-end coffee growers means the global coffee chain has ample supplies for the future, the Starbucks founder told Reuters in an interview.

At the very top of the market where Starbucks plays, I do not believe that others will have access to the quality of coffee that we are buying because we have secured those sources, Schultz said.

Speaking on a trip to Mexico City to mark five years since opening the first store here, Schultz said Starbucks buyers traveled 300 days a year nurturing contacts with farmers, finding new growing regions and training suppliers to produce better coffee.

At certain points in the future, the work that we have done over the last 10 years to secure supply and to establish relationships will become a significant competitive advantage, he said.

Starbucks has more than 13,000 stores worldwide, with more than 10,000 in the United States. In 2001, the chain had just 3,000 U.S. stores.

Despite shortages of the very best coffee in the long term, Schultz predicted market prices for regular arabica beans would be stable in the mid-term.

I think the market in terms of the economic issues is fairly stable, unless there is some significant weather catastrophe somewhere in the world, he said.

He said Starbucks' buying strategies helped protect it from rises in coffee prices.

We are in a unique position in that we are very forward in terms of physical inventory and forward contracts, he said.

Schultz, who in the past has expressed concern about a possible watering-down of the Starbuck's brand, said the company was focused on coffee after a string of moves into new markets like the music business.

A lot of innovation in the near term will come around coffee, he said. If anyone believes that Starbucks is going to allow another company to take our leadership position away they are mistaken. He declined to give details.

Starbucks has seen its shares slide in value to about $27 after passing $40 last year. The company recently raised the price of its coffee drinks, blaming soaring milk prices.

It's like being in a sailboat in the middle of the ocean and all the instruments tell you that everything is fine and all of a sudden you are in the middle of a storm, he said of rising dairy costs.

Despite higher costs and a slower U.S. economy, Schultz predicted Starbucks would meet Wall Street earnings forecasts next year.

We will meet the expectations the Street has for Starbucks, he said.

Schultz, who joined Starbucks in 1982 when the company had four stores, said growing interest in top-end coffee from firms like McDonalds Corp. and Dunkin Donuts actually benefited his company.

Starbucks is not an advertiser. If other companies are going to advertise and promote specialty coffee, Starbucks is going to benefit in the long term, he said.

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