Cyrillic Partners

From the FT:

Shares in Starbucks slumped after the café chain on Thursday stirred concerns about the health of the US economy when it reported its first quarterly fall in traffic at its US stores and announced plans for its first television advertising campaign.

The planned holiday season advertising comes as Starbucks acknowledged that its supposedly “recession proof” sales of frappuccinos and flavoured latte drinks were feeling the impact of broader slowdown in US consumer spending.

Shares in Starbucks fell 8.6 per cent at $22.02. The company’s shares are now down 38 per cent this year.

There’s no secret in what’s driving the Starbucks slide: the falling dollar. The coffee business is commodity based: it’s major input is coffee beans, which have to be imported. When the dollar weakens against foreign currencies, it’s more expensive to buy commodities such as coffee. Starbucks gets stuck with the bill.

But when the company tries to pass the price along to consumers with a $0.09 increase in its per-cup prices, the law of supply and demand kicks in and people buy fewer frappuccinos.

This isn’t a story about “Recession” or “Inflation.” Nope. It’s all about international trade and currency. The Federal Reserve is willing to crucify companies that are net-importers, at least in the short term, in exchange for domestic growth.

Good bets right now are on companies that are net-exporters, themselves a rare commodity in the U.S. these days.

[Image thanks to Boston.com]

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