Starbucks is immune to the recent spike in coffee prices thanks to a common yet brilliant business strategy

Starbucks is immune to the recent spike in coffee prices thanks to a common yet brilliant business strategy

Prices are going up for ingredients and food across the retail industry, but Starbucks says it has coffee prices locked in for months. Starbucks buys coffee beans using a method called hedging. Basically, Starbucks locks in a price to buy coffee beans over an agreed-upon future period, "hedging" against risk. The contract acts almost like insurance, protecting Starbucks from paying higher prices if coffee beans spike due to a weather event, shortage, or some other issue. "Over the years we've created a very thoughtful approach to how we source, warehouse, and use hedging techniques to ensure we always have supply of premium Arabica green coffee at an attractive cost basis," Starbucks CEO Kevin Johnson told investors in an earnings call in July. "In fact, we purchase green coffee 12 to 18 months in advance, and we never stopped buying green coffee through the pandemic." as Brazil, a major coffee producer, was hit by a drought followed by the worst frost in over 20 years. The full effect won't be realized until the 2022 crop is harvested, meaning coffee prices could remain inflated for months or longer. Starbucks is insulated from those price increases for a while, though. "We currently have