Coffee Commodity Exposure without Futures - dummies

Coffee Commodity Exposure without Futures

By Amine Bouchentouf

If you want to stay grounded while still getting exposure to coffee commodities in your portfolio, try investing in companies that specialize in running gourmet coffee shops.

In most metropolitan areas, you can’t walk a block without spotting two or three gourmet coffee shops, especially Starbucks. Coffee shops are nothing new — Arabian coffee shops sprang up in the Middle East as early as the 15th century. Today, coffee shops are still a place where you can enjoy a nice (and big) cup of coffee while socializing with friends.

But behind the relaxed, laid-back atmosphere is a complex money-making operation. Coffee is serious business and you can profit from the coffee craze that has gripped America (the largest consumer of coffee in the world) and is spreading throughout Europe and newly-developing countries like India and China by investing in the companies that are capitalizing on this trend. Find out where your $4.50 for a cup of coffee is going and profit from it.

While you’re probably familiar with Starbucks, a number of other gourmet coffee shops and distributors provide you with a good investment opportunity:

  • Starbucks Corp. (NASDAQ: SBUX): Perhaps no other brand has come to represent an entire industry as Starbucks has coffee. (The only other brands that come to mind are Kleenex with tissues and Xerox with photocopiers.)

    Starbucks is a cultural phenomenon, but, more important, it’s also a financial juggernaut. This is a $20-billion company with about $10 billion in revenue (according to 2009 figures). Starbucks dominates the entire coffee supply chain, from purchasing and roasting to selling and marketing. It has over 10,000 stores worldwide, primarily in the United States and Europe but also in China, Singapore, and even Saudi Arabia.

  • Peet’s Coffee and Tea, Inc. (NASDAQ: PEET): Peet’s Coffee only operates about 100 coffee shops, but their strength lies in distribution. The company sells a large selection of coffees, produced in countries as diverse as Guatemala and Kenya, to customers across the United States, including restaurants and grocery stores.

  • Green Mountain Coffee Roaster, Inc. (NASDAQ: GMCR): Green Mountain Coffee, with headquarters in Vermont, operates in the distribution of specialized coffee products. It sells premium Arabica coffee to a number of entities, such as convenience stores, specialty retailers, and restaurants.

    It has a large presence in the East Coast and has a partnership with Paul Newman’s Newman’s Own company to provide organic coffee to customers. This is a good company if you want exposure to the high-end coffee distribution market in the Northeast.