The sinking value of the US Dollar

[narc]

Just returned from a month in Venezuela. Experienced the diminishing value of the US$ in a developing nation. The lost in faith of the US$ has resulted in the dumping of the currency. Within 4 weeks the street value dropped from $1 = 3.6 BF to 2.9 Bolivars. The Euro was holding steady at 4.7 Bolivars. Official currency rate is 1$=2.14 BF. .

In the real world of coffee hardware commerce the decreasing value of the dollar relative to the Euro should be effecting the price of the hardware we purchase. So far, there doesn't seem to be major across the board price jump. I'm suspecting the retailers are holding off until the next container arrive. Could get ugly regarding prices.

[HB]

According to last year's poll Where are the prices of espresso equipment going?, only half the respondents believe the cost of espresso equipment will rise faster than other consumer goods. Below is an update to the Euro versus US Dollar chart I posted in that thread:


USD vs. Euro: The journey from parity to paltry

It does not paint a pretty picture for Euro-zone importers. Some sponsors have mentioned in casual conversation that prices would rise with the next shipment to replenish stock depleted by holiday shopping. For now, I think some manufacturers are absorbing the exchange rate loss simply to stay in the U.S. market. They're no dummies, they know that it takes years to build brand identity and losing ground today would cost them for years down the road. How long before they say "enough is enough" and start passing the cost directly to the U.S. consumer is anyone's guess.

[Jarno]

Besides at this point, no one expects the dollar to continue it's slide forever. US is in recession at the moment (don't ask the politicians, though). Hopefully, the dollar will reverse its trend late this year or by next year.

[BobS]

Besides at this point, no one expects the dollar to continue it's slide forever. US is in recession at the moment (don't ask the politicians, though). Hopefully, the dollar will reverse its trend late this year or by next year.

I don't see that happening. The housing debacle has a couple of years left to play out, the credit problems will continue. Oil is not going to decrease in price and will probably head towards $150/barrel. Bunker fuel continues to increase in price, so shipping will eat into more of the cost. While the bottom for the U.S. is somewhere around 2010 or 2012, there's going to be a lot of demand destruction that's going to hurt a lot of economies and I really don't see a bright side until sometime after 2015 or 2018.

Bob

[shadowfax]

Well, now we've heard from an optimist and a pessimist...

It really is quite saddening to see. It makes me wonder if we will see a high end machine maker start producing them here in the US. As the price on these Euro markets bounces up, it might give a competitive edge to move or start a facility for building them here in the US. Or maybe I am just dreaming and have no idea of what I speak.

[BobS]

It really is quite saddening to see. It makes me wonder if we will see a high end machine maker start producing them here in the US. As the price on these Euro markets bounces up, it might give a competitive edge to move or start a facility for building them here in the US. Or maybe I am just dreaming and have no idea of what I speak.

As with cars, it might make a lot of sense to build more machines here. We have a few already - Astra,
Salvatore, Synesso, and, I think, a couple of others. But, I don't see that happening from one of the
major vendors. It would also have to be suppliers as well - water valves, pressurestats, controllers,
and the whole range of supporting industries. Most of these seem to be in Italy, so shipping would be
significantly less for parts only, but someone would need to warehouse parts at the local level. To
make it viable, a range of machines would need to be built - sustainable volume to keep costs low,
or the creation of a niche machine, like we currently have, which makes the price per machine quite
high due to initial engineering costs.

With the proper product mix and listening to customers there could be a viable on-shore business.
It would take someone with a love of espresso that had been successful enough to have enough
contacts or friends to venture into such a market, with the resources to be able to survive (venture
capital funding) three to five years before turning a profit.

Bob

[BobS]

Well, now we've heard from an optimist and a pessimist...

Actually, what I said was the moderate, almost optimistic view. I've seen the pessimistic view
and spent most of last year almost depressed about it. But I'm back to enjoying the coffee.

Bob

[BobS]

On setting up an espresso machine Mfg. operation here in the U.S....

If it were me, I'd -

- buy out Salvatore.
- form a deal with Dalla Corte for their group head.
- attempt to set up a common parts warehousing operation as a co-operative along with the rest
of the part suppliers and repair vendors around, at least the North American hemisphere.
- Offer 3 machines -

- Espresso only machine based on the Dalla Corte head with and without PID, no steam boiler,
vibe or rotary pump, pour over or plumb-in, improved ergonomics, NSF approved.
- HX e61 machine - pretty much the Salvatore design with tweaks to deal with some of the HX
issues, improved ergonomics, while maintaining the simplicity of the design - vacuum
breaker optional, no OPV valve. Vibe or rotary pump, lever only, pour over or plumb in,
NSF approved, 15A.
- Steamer only, HX based hot water, 15A, plumb-in only, NSF approved.
- Maybe an auto version of the above with flowmeters...

Any other offering would be based on customer demand.

While there is a savings in going to a frameless design like the current crop of prosumer machines, their
layout, wiring, plumbing, and ergonomics leave a lot of to be desired. Thus the - buy out Salvatore's
frame design and improve on it.

Bob

[cannonfodder]

It would cost more to make machines in the US. You would have to pay that union labor assembly guy $25 an hour to put a screw on a case. And we wonder why the US auto industry is going belly up.

[shadowfax]

It would cost more to make machines in the US. You would have to pay that union labor assembly guy $25 an hour to put a screw on a case. And we wonder why the US auto industry is going belly up.

Does there really need to be a union for espresso machine assembly? I mean, I somewhat have trouble believing that would be inevitable. It's such a small volume thing, I would think. Also, I have trouble believing that there is some kind of child labor going on in a country like Italy, or anywhere else in Europe, getting super-cheap labor for assembly. My take is that my Vetrano should cost about $5-700 if it could be assembled en masse like a toaster or other appliance that's in every kitchen in America. Heck, most of these E61 machines cost significantly more than a Maytag washing machine, and appliance with significantly more metal in it. Maybe I am way off base, but I was under the impression that, even before the dollar took a nose-dive, these machines were stinking expensive compared to machines with similar equipment for the simple reason that someone in Italy is getting paid 25 Euros per hour to screw the boiler onto the machine and connect all the wires. Am I wrong?

Still, I wouldn't start an espresso machine company here in the US. It sounds like the real issue is sourcing all the special parts that are also made in Italy.

[Beezer]

I think it has a lot to do with economies of scale. Washing machines are relatively cheap because big manufacturers build millions of them, and so it costs them less to make each individual machine. By contrast, high end espresso machines are a small production item, usually made by hand by a small company with relatively few employees. So the costs per machine are much higher. As to whether it would cost more to build them in Europe or America, I couldn't say. Both areas have pretty high labor costs, as far as I know. Now if you were making them in China or some other country where labor is very cheap, then you could probably lower costs. But making them in a "First World" country is going to be more expensive.

[shadowfax]

I think it has a lot to do with economies of scale.

Yeah, that's what I meant to say about the issue of making a washing machine vs. a coffee machine.

I think that was also my point about manufacturing in the US--Italy and the US are both first world countries, and I believe that both countries have labor unions and high labor costs, because the so-called standards of living are comparable. I would surmise that, given that the US Dollar is plummeting with respect to the Euro, and given comparable living standards in each country, it will likely become cheaper to manufacture the machines in the US at some point soon... The trouble will probably be parts sourcing and the cost of investment in manufacturing facilities.

[cannonfodder]

How about a coffee comparison. Why do you think Kona is so outrageously expensive? It is not superior to many other origins. It grows on Arabica trees in dirt, gets fertilized with compost, gets picked by hand, processed on the same equipment. The difference is in the labor. It is much more expensive to pick than a comparable coffee from Africa, not that I advocate the poverty wages they get paid to pick the product. It just costs more to produce products in the good old US of A due (in part) to the increased labor cost. I would wager that if you manufactured the exact same machine in the states versus Italy, it would be nearly twice the price for no other reason than the increased cost of manpower to produce. That includes not only the person that screws the box together, but the guy at the mill that makes the steel, the cost of transportation, other raw materials which are more expensive due to the increased cost of manufacture. That is exactly why many large companies are moving their large scale manufacturing off shore. Don't get me wrong, this is not a rant about US economics, I would not want to live anywhere else, just a fact of life.

[Jarno]

I understand the Japanese have something to do with price of Kona, and Blue Mountain, for that matter. After all, if Kona didn't command such a high price, the plantation owners would quit growing coffee and stick a hotel on it instead.

In the end the commerce of espresso machines is all about supply and demand. In the overall scheme of things, the worldwide demand for espresso machines isn't like that of, say, washing machines.

[narc]

Regarding the price of Kona. It's priced probably where coffee should be priced. If you have been following the story of the effects of the coffee pricing on the coffee worker, farmer for the last 20 years you will realize our bargin prices are at significant human cost. Check out Oxfam's now date article "Mugged", CoffeeKids.org, equalexchange.com, the list goes on.... Back in '00, I was told that the pickers on the Big Island were paid $0.46/# of ripe cherries. Assuming #10 of ripe cherries yields #1 of greens, add processing cost Kona greens end up costing the farmer more to grow & process than the so called Fair Trade price of coffee. Is the value of a farmers efforts in Guatemala worth that much less than an American?

[BobS]

I don't believe it's all that simple to say it's just wages. There are a lot of laws that drive costs, as well
as energy costs, raw material supply, administrative costs, location costs, and a multitude of other items.

Ignoring the Kona vs. other coffee argument for the moment, while labor costs can be a big factor, most
Mfg. labor costs are not the major costs of products today. True, older industries like the U.S. Auto
and Airline industries have legacy setups where pensions are a significant issue, most costs are not
the hourly employee, most human related costs are in the administrative overhead of companies. The
rest of the product cost is in the materials and assemblies used to create the product.

If one sources sub-assemblies from Italy - group heads, controllers, p-stats and valves, but builds
the rest locally, then the price should be close to the same or, with enough volume, less than a fully
built machine shipped from Italy. It's worked this way for years with many products. Where it falls
apart is when the fully assembled product + shipping can be made significantly cheaper due to many
other factors, of which labor is one piece of it.

From a global perspective, the Italians are getting hit as hard as everyone else on raw material prices,
Along with the fact that the majority of industrialized world has shutdown most of it's steel production
and now China provides the vast majority of non-specialized steel.

Espresso machines are a fairly low volume item and could be done in a smallish type shop. without
costing a lot of money. Look at Astra and Salvatore, both are fairly affordable, yet both are made
in California - one of the most expensive places to be located. Yet both are in business and don't seem
to be in trouble.

If it's felt that wages and benefits are such a big factor, one could do like the U.S. auto companies,
along with many of the electronic and other companies and locate just across the border in Mexico.
But, to me that type of problem is the sign of poor management operational processes and too much
administrative overhead.

Bob