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Coffee reprint...

Wednesday, February 22, 2012. Newark Libery International Airport, Newark, NJ., USA

We are on our way back from NYC to Prescott, and after over two-weeks away from home, we can't wait to get back to our Arizona desk. Here is a reprint from all the way back in 2007. Note some of the estimates went out-to 2010, which leaves us wondering how close they were - now that we are 2-months into 2012.

Two-buck Chuck? No, 3 bucks a cup - for acid reflux!

Over the course of the last few years, we have written many articles concerning various beverages. As we said in June of 2006: Not being "big" drinkers, as least since our crazy college days, we do, however, still enjoy, every-now-and-then, a good goblet of glorified grapes, frosty stein of beer, or a small glass of fortified wine from Portugal's Douro Valley, known to most as "Port." Touching on everything from $500 bottles of tequila, wines as wide-ranging as "Two-buck Chuck" to a nice Napa Cabernet from Silver Oak Cellars, beers like Negro Modelo, Budweiser and Wisconsin's - Leinenkugel, our daily missives have gladly gone the drinking distance and run the guzzling gamut.

We currently drink green tea in the mornings and "iced" with our lunch, but as the northern Wisconsin weather turns a little cooler, we are beginning to heat up at least our morning "sipper," and have even tried a warmed-over cup with dinner. But, up until the acidic properties in our daily coffee began to create some health problems, we were at least a three to four cup-a-day java enjoyer. Mud-like black at home and/or at least a "quad" latte at any of our favorite coffee houses, were our daily "perk-me-ups," and the price was usually of no concern.

There are now 4 Starbuck's stores in our winter hometown of Prescott, Arizona, along with several other small coffee specialty operations. Until our acid malady of a few years ago, we would make a daily, early morning trip to our neighborhood Starbucks (SBUX) for a fresh "suped-up" latte, with sometimes as many as four extra shots of espresso. On warm days it might be a frothy Frapaccino or a Venti iced latte, but during most of the winter months, it was a steaming black coffee of the day or "skinny" (skim milk) hot latte. At just about any location and at every different dispenser of delicious "Jo," the cost for the instant blast of adrenaline would be between $2.50 and $5.00. And, yes, we were clearly "hooked," on the stuff, but thankfully a doctor's orders took the daily vice away.

Just about every stock/options investors knows the Starbucks story, from their first store in Seattle's Pike Place Market (1971), to it's current list of almost 9,000 outlets, SBUX has continued to surprise just about everyone. Why the surprise? As we said, the cost for a "cup-of-jo" at just about every specialty coffee house is somewhere in the $3.00 range, and with a flaky scone or bagel with cream cheese, it can get up to five, even six bucks. That seems pretty steep to us, but breakfast "out" is already a relatively expensive meal, when you consider most "combo" breakfast "deals" at fast food "joints" are between $3.50 and $5.00, and a real "sit-down first meal of the day" at a local diner will usually have at least a $10.00 tag. A restaurateur once told us, in fact, that breakfast has the highest percentage return per store in the industry, and he owned a chain of pancake houses.

But just how many consumers are willing to shell-out three-bucks-a-cup for some caffeine fusion? Statistics show, among coffee drinkers, that the average consumer drinks just over three cups a day. Are people really spending nearly 10 bucks a day on coffee? Specialty coffee stores now account for 10% of the $18 billion U.S. coffee market (2000), and their slice-of-the-pie is growing at about 20% a year. As of 2000 there were over 110,000,000 coffee consumers in the U.S., with the National Coffee Association claiming that a full 54% of the adult population drinks coffee daily, and that about 19% of these java junkies drink some form of "gourmet" coffee. Other interesting stats show that 65% of all coffee consumed is done at breakfast, which means that over 70 million cups are being brewed each-and-every morning and a total of over 400 million cups are enjoyed at some time during the day.

There will be an estimated 50,000 specialty coffee shops in the United States by the year 2010, and the average store sells between 200 and 400 cups per day. The U.S. imports over $4 billion worth of coffee every year from any of the 53 countries that grow coffee worldwide, and all of these lands lie along the equator between the tropic of Cancer and Capricorn. The world's largest coffee producer is Brazil with almost 4 million coffee trees, Columbia is second with about two-thirds of Brazil's production. The percolator was invented in 1827 by a Frenchman, and up until about the turn of the century, most coffee was brewed at home at a cost of pennies per week. Whew, at the current rate of three-bucks a cup (now over $4.00), what you are really enjoying is a fresh brewed, mocha flavored blast of hyper coffee inflation. When we consider there are tens of millions of consumers sipping their expensive, spiffy, gourmet coffee every morning-noon-and-night, for some reason we begin to get that acid reflux feeling all over again .

"...on a clear day you can look through the windows and see as many as 6,000 coffee breaks at once.” -- Frederic Morton

(* = FHW position)

What's Frank Thinking? | 2/22/2012 7:55:22 AM | 0 Comments