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Connor Su (301215392)
Xiaobai Ru (301186106)
Ziqing Tang (301215541)
Top 10 Coffee Producing Countries:
– 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
In Canada
• 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
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
• Consumers aged 40 to 59
– 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
• Grocery stores and supermarkets
– 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
– 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.
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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
• 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
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Risk Factors
• 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
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Primary Market 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
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Equity Security Price 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
• 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
• Formerly called: Green Mountain Coffee Roasters
• Type: Public corporation
• Traded as: NASDAQ: GMCR—S&P 500 Component
• Industry: Processed & Packaged Goods
• Products: Coffee & Coffee
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INTRODUCTION
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BUSINESS
• Overview
• The Products
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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
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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
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Risk Factor
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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
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Risk Factor
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Market Risk
Quantitative and Qualitative Disclosures about Market Risk
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Market Risk
• Interest Rate Risks
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Market Risk
• Interest Rate Risks
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Market Risk
• Commodity Price Risks at September 27, 2014 (in thousands)
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Market Risk
• Commodity Price Risks at September 27, 2014 (in thousands)
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Market Risk
• Foreign Currency Exchange Rate Risk
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Market Risk
• Foreign Currency Exchange Rate Risk
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Summary—Interest Rate
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Summary—Gain or Loss
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Summary—Gain or Loss
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