The Time Has Come for Coffee Arbitrage!

A blog about business and economics.
Aug. 25 2014 1:24 PM

How to Make a Profit off Rising Coffee Prices

10378592126_af5c1b10e0_k
Profit waiting to happen?

Photo by GoToVan via Flickr

Something big is happening to coffee. One after another, major players in the market have announced plans to raise their prices. The cost of packaged coffee sold in stores from Starbucks and Dunkin' Donuts and Maxwell and you-name-it is rising between 8 and 10 percent to compensate for the increased prices of blighted and drought-stricken coffee beans. Many of those price hikes have already taken effect. But some—like the up-to-9-percent raise for Keurig Green Mountain Coffee's K-Cups—don't hit until the fall. And herein lies a great business opportunity.

Call it coffee arbitrage. Coffee sellers are raising prices by a specific amount on a specific date in the future—creating the chance to buy low and sell high in quick succession. For example, on Nov. 2 a 24-pack of Green Mountain Coffee's Nantucket Blend K-Cups will likely cost $16.49 (its current list price). But the following day, that same 24-pack could go for as much as $17.97. That means if you bought the pack on Nov. 2 and resold it the next day at its new list price (or more realistically, slightly less than that), you could make a profit of $1.48 on the exchange.

screen_shot_20140825_at_12.03.13_am

Screenshot from Keurig.com

Advertisement

Now for the real question: Could you make a lot of money off of coffee arbitrage? Gabriel Chodorow-Reich, a professor of economics at Harvard, tells me that he's skeptical. First, he says, you'd want to sell the K-Cups as close to the time of the price increase as possible so that inflation didn't eat away at your potential profits. Second, to carry out the operation on a big enough scale to make real money, you'd need to consider some logistics: Where will you get the money to buy large quantities of K-Cups? How will you pick them up? And once you've acquired them, where will you store them? Then there's the opportunity cost of buying and holding the coffee—the money you use for that can't be used for anything else. And finally, to sell everything quickly, you're going to need some sort of distribution network.

"Could you do it? Maybe," Chodorow-Reich says. "But you sort of have to run through the storage costs and the opportunity costs of your money and the time and the distribution network and weigh all that against the price increase." Because of all this, coffee arbitrage is unlikely to meet the technical definition of arbitrage: a sure possibility of making money with no possibility of losing money. "In this case, it can’t just be that you buy up a bunch of beans and think you’ll be able to resell them—you have to lock in a futures contract for those beans once the price has gone up," he says.

If you do attempt coffee arbitrage, K-Cups are likely your safest bet—they'll keep longer than coffee beans, which you'd need to unload before they spoil. And at any rate, law professors say that attempting to make a buck off rising coffee prices is a legitimate business venture. "I'm happy to report that this raises no legal issues—you are free to buy and sell coffee in massive quantities," Ryan Bubb, a professor at New York University School of Law, emailed. It might not be the next gold rush, but the window for coffee arbitrage is open and now is the time to act.

Alison Griswold is a Slate staff writer covering business and economics.

 

TODAY IN SLATE

Politics

Don’t Worry, Obama Isn’t Sending U.S. Troops to Fight ISIS

But the next president might. 

The Extraordinary Amicus Brief That Attempts to Explain the Wu-Tang Clan to the Supreme Court Justices

Amazon Is Officially a Gadget Company. Here Are Its Six New Devices.

The Human Need to Find Connections in Everything

It’s the source of creativity and delusions. It can harm us more than it helps us.

How Much Should You Loathe NFL Commissioner Roger Goodell?

Here are the facts.

Altered State

The Plight of the Pre-Legalization Marijuana Offender

What should happen to weed users and dealers busted before the stuff was legal?

Surprise! The Women Hired to Fix the NFL Think the NFL Is Just Great.

You Shouldn’t Spank Anyone but Your Consensual Sex Partner

Moneybox
Sept. 17 2014 5:10 PM The Most Awkward Scenario in Which a Man Can Hold a Door for a Woman
  News & Politics
Altered State
Sept. 17 2014 11:51 PM The Plight of the Pre-Legalization Marijuana Offender What should happen to weed users and dealers busted before the stuff was legal?
  Business
Business Insider
Sept. 17 2014 1:36 PM Nate Silver Versus Princeton Professor: Who Has the Right Models?
  Life
Dear Prudence
Sept. 18 2014 6:00 AM All Shook Up My 11-year-old has been exploring herself with my “back massager.” Should I stop her?
  Double X
The XX Factor
Sept. 17 2014 6:14 PM Today in Gender Gaps: Biking
  Slate Plus
Slate Fare
Sept. 17 2014 9:37 AM Is Slate Too Liberal?  A members-only open thread.
  Arts
Brow Beat
Sept. 17 2014 8:25 PM A New Song and Music Video From Angel Olsen, Indie’s Next Big Thing
  Technology
Future Tense
Sept. 17 2014 9:00 PM Amazon Is Now a Gadget Company
  Health & Science
Medical Examiner
Sept. 17 2014 11:48 PM Spanking Is Great for Sex Which is why it’s grotesque for parenting.
  Sports
Sports Nut
Sept. 17 2014 3:51 PM NFL Jerk Watch: Roger Goodell How much should you loathe the pro football commissioner?