Coffee, Tea, Cold Drinks and Fizz
| Published Sunday, May 18, 2014 |

By Thursday Review staff

Starbucks has found a way around the problem of Brazil’s drought—promote products other than coffee.

A severe and prolonged drought in Brazil has put a significant dent in the world’s supply of Arabica coffee, the type preferred in most high end flavors and gourmet blends. That drought, followed closely by pests who thrive on the dry heat, and by recent flooding, has spurred a shortage of morning caffeine and driven coffee prices up worldwide. Brazil supplies nearly one third of the world’s coffee.

And like many high end coffees available in retail stores and specialized coffee shops where Arabica is the preferred blend, that means supply problems and price increases. Several major brands, including Gevalia and Peet's, have already raised prices.  But, Starbucks—one of the nation’s most popular coffee shop chains and a major grocery store suppliers—is feeling the pain more than anyone.

Starbucks’ solution, at least for the short term, is menu diversity: when the costs of coffee spikes dramatically, offer other products. Starbucks, which operates more than 20,000 stores worldwide—13,279 in the United States—is already introducing a variety of tea products to its stores in New York and Seattle, with plans to expand the tea offerings to stores in other cities this summer. The tea will be under the brand name Teavana, a smaller company which Starbucks acquired two years ago.

Starbucks is also testing the viability of its own line of carbonated and chilled beverages, most notably Fizzio, a “handcrafted” soda which will be introduced in three flavors; Spiced Root Beer, Ginger Ale, Lemon Ale, with the possibility of more flavor options later. Fizzio will soon be available in at least 3000 stores in the United States, along with more retail locations in China, South Korea and Singapore.

Starbucks also owns a company called Evolution Fresh, which it acquired in 2011. Evolution Fresh specializes in a variety of organic juices and drinks, including Ginger Limeade, Organic Sweet Burn and Strawberry Lemonade. The Ginger Limeade product is already available at some Starbucks retail locations, and the Seattle-based company may expand the Evolution Fresh product line into more of its  coffee shop locations nationwide.

Both Gevalia and Peet’s already market teas and other products. Starbucks hopes that its diversification into the areas of tea, carbonated drinks and cold drinks will help to cushion at least part of those price increases for the Arabica products. Technically, Starbucks has been in the tea business since its 1999 acquisition of Tazo Tea for $8.1 million, and more recently its purchase of Teavana in 2012. But Starbucks has not generally sold gourmet teas in its coffee shops until now.

Starbucks has also sought to hedge its bets by purchasing its first fully owned and operated bean farm in Costa Rica, where it will work to develop its own blends and hybrids crafted to be resistant to pests and disease. A fungus called Leaf Rust has been decimating some crops in Central America—most especially in Honduras, Costa Rica and El Salvador—where it has reduced coffee production by more than one third. In addition, an insect known as the cherry borer has become more aggressive and opportunistic in recent years, thanks to warmer temperatures in coffee-growing regions. The cherry-borer tunnels into young beans while they are in the fruit stage, destroying the coffee beans before maturity.

The Brazilian drought and the Central American pests and diseases have combined over the last 18 months to drive up coffee prices worldwide, despite healthy coffee production in a variety of other countries, including Vietnam (the world’s second biggest producer of all coffee), Indonesia, Ethiopia, Colombia and Peru.

Still, diehard coffee enthusiasts seem undaunted by the possibility of more price increases in coffee. (Thursday Review posted articles in this subject in March and April, and the consensus among those who responded to our stories about coffee price increases was that they would continue to drink their beloved coffee!)

Related Thursday Review articles:

How Much Will You Pay For Coffee?; R. Alan Clanton; Thursday Review; March 14, 2014.