Starbucks 2010 Annual Report Download - page 19

Our International operations are also subject to additional inherent risks of conducting business abroad, such as:
• foreign currency exchange rate fluctuations;
• changes or uncertainties in economic, legal, regulatory, social and political conditions in our markets;
• interpretation and application of laws and regulations;
• restrictive actions of foreign or US governmental authorities affecting trade and foreign investment,
including protective measures such as export and customs duties and tariffs, government intervention
favoring local competitors, and restrictions on the level of foreign ownership;
• import or other business licensing requirements;
• the enforceability of intellectual property and contract rights;
• limitations on the repatriation of funds and foreign currency exchange restrictions;
• 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;
• local laws that make it more expensive and complex to negotiate with, retain or terminate employees; and
• delays in store openings for reasons beyond our control, or a lack of desirable real estate locations available
for lease at reasonable rates, either of which could keep us from meeting annual store opening targets and, in
turn, negatively impact net revenues, operating income and earnings per share.
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, in fiscal 2010, the base “C” coffee commodity price increased
markedly. The high-quality arabica coffee of the quality we seek tends to trade on a negotiated basis at a substantial
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. The supply
and price of coffee we purchase can also be affected by multiple factors in the producing countries, including
weather, 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 (see discussion of “Product Supply” in Item 1 above) 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.
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