Starbucks 2012 Annual Report Download - page 19

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• limitations on the repatriation of funds and foreign currency exchange restrictions due to current or
new US and international regulations;
• in developing economies, the growth rate in the portion of the population achieving targeted levels of
disposable income may not be as fast as we forecast;
• difficulty in staffing, developing and managing foreign operations and supply chain logistics, including
ensuring the consistency of product quality and service, due to distance, language and cultural
differences, as well as challenges in recruiting and retaining high quality employees in local markets;
• local laws that make it more expensive and complex to negotiate with, retain or terminate employees;
• delays in store openings for reasons beyond our control, competition with locally relevant competitors
or a lack of desirable real estate locations available for lease at reasonable rates, any of which could
keep us from meeting annual store opening targets and, in turn, negatively impact net revenues,
operating income and earnings per share; and
• disruption in energy supplies affecting our markets.
Moreover, many of the foregoing risks are particularly acute in developing countries, which are important to our
long-term growth prospects.
•Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the
availability of high-quality arabica coffee beans or other commodities could have an adverse impact on our
business and financial results.
We purchase, roast, and sell high-quality whole bean arabica coffee beans and related coffee products. The
price of coffee is subject to significant volatility and, although coffee prices have come down from their near-
record highs of 2011, they are still above the historical average price of coffee and may again increase
significantly due to factors described below. The high-quality arabica coffee of the quality we seek tends to
trade on a negotiated basis at a premium above the “C” price. This premium depends upon the supply and
demand at the time of purchase and the amount of the premium can vary significantly. Increases in the “C”
coffee commodity price do increase the price of high-quality arabica coffee and also impact our ability to enter
into fixed-price purchase commitments. We frequently enter into supply contracts whereby the quality, quantity,
delivery period, and other negotiated terms are agreed upon, but the date, and therefore price, at which the base
“C” coffee commodity price component will be fixed has not yet been established. These are known as price-
to-be-fixed contracts. The supply and price of coffee we purchase can also be affected by multiple factors in the
producing countries, including weather, natural disasters, crop disease, general increase in farm inputs and costs
of production, inventory levels and political and economic conditions, as well as the actions of certain
organizations and associations that have historically attempted to influence prices of green coffee through
agreements establishing export quotas or by restricting coffee supplies. Speculative trading in coffee
commodities can also influence coffee prices. Because of the significance of coffee beans to our operations,
combined with our ability to only partially mitigate future price risk through purchasing practices and hedging
activities, increases in the cost of high-quality arabica coffee beans could have an adverse impact on our
profitability. In addition, if we are not able to purchase sufficient quantities of green coffee due to any of the
above factors or to a worldwide or regional shortage, we may not be able to fulfill the demand for our coffee,
which could have an adverse impact on our profitability.
In addition to coffee, we also purchase significant amounts of dairy products, particularly fluid milk, to support
the needs of our company-operated retail stores. Although less material to our operations than coffee or dairy,
other commodities including but not limited to those related to food inputs and energy, are important to our
operations. Increases in the cost of dairy products and other commodities could have an adverse impact on our
profitability.