Company: Starbucks Coffee BACKGROUND Starbucks Corporation is the largest coffee company in the world, with over 17,000 stores located around the globe. Headquarters are located in Seattle, Washington, United States. Starbucks offer beverages- mainly coffee and tea, food- salads, snacks, sandwiches to customers. The company also markets books, music, and film. DEMAND OF STARBUCKS Is the demand for Starbucks elastic or inelastic? Starbucks mainly sells coffee, and coffee is an inelastic good, it is addictive and therefore a necessity.
Starbucks is the most expensive coffee seller among competitors such as McDonald’s McCafe, coffee from supermarkets, etc. Yet, it will still be able to retain its’ customers as they sell more than coffee, they sell the coffee experience. “We’re not just selling a cup of coffee, we are providing an experience. ”- Howard Schultz, chairman, president and chief executive officer of Starbucks Customers have become accustomed to the services they provide and the convenience they bring, therefore the demand for Starbucks is inelastic. How Economic Downturn affected Starbucks sales
According to Wall Street Journal, “Starbucks is struggling to attract and retain consumers in a recession. Starbucks said U. S. comparable-store sales fell 8% in its latest quarter as traffic fell 5%, and average transaction totals fell 3%. ” Market strategy Starbucks differentiates its product by location, hours of operation, service, and quality of products. Starbucks open up many chain stores in a small geographical area, to dominate the market by saturating the market and fighting down competitors by buying out their leases.
Besides that, Starbucks has set up cafes and carts in hospitals, banks, office buildings, supermarkets, and shopping centers. Some Starbucks (depends on location) are open 24/7. They provide a comfortable environment for customers to hang out. Starbucks coffee is strictly arabica, and the company ensures that only the highest quality beans are used. Customer’s Preference Customers love the chilled, laid-back environment that Starbucks provides, it also seemed to be a “trend” and it is “cool” to be chilling in Starbucks.
Starbucks provides free wi-fi starting from July 1, 2010 to attract more customers. Visiting Starbucks has become a habit to customers. Risks that might affect the demand Perhaps concerns about the effect of the caffeine in coffee might decrease the demand for Starbucks. A price decrease of coffee’s substitutes can also decrease the demand for coffee, such as tea, caffeine-free beverages. SUPPLY OF STARBUCKS Product Production The coffee industry is Starbucks’ specialty. The main inputs of production are coffee beans.
The three largest coffee bean producers are Indonesia, followed by Brazil and Vietnam. The beans are shipped to roasting facilities where the beans are roasted until they receive their characteristic color and aroma and then cooled. Once the beans are cooled, roasters blend beans from different countries to balance the flavors and strengths. Roasters then package, market, and distribute coffee through a variety of methods. Elasticity of Supply The elasticity of supply of Starbucks is elastic, as their complexity of production is relatively simple.
Since their stocks of raw materials (coffee beans), components and finished products are high then the firm is able to respond to a change in demand quickly by supplying these stocks onto the market. Factors affecting Supply There could be different types of factors that shift the supply curve of Starbucks coffee. Whether the shift benefits the company depends on the nature of the factors. The follow factors are a few examples that will affect the supply: •Price alterations on factors of inputs – coffee beans, labor, land, etc. A decrease in supply of coffee beans (raw material) could cause adverse affect on the supply of Starbucks coffee) •Technological improvements – better coffee makers •Price of related goods – derived goods REFERENCES 1. http://www. starbucks. com/ 2. http://en. wikipedia. org/wiki/Starbucks 3. http://online. wsj. com/article/SB124103701018769993. html#mod=rss_whats_news_us 4. mba. tuck. dartmouth. edu/pdf/2002-1-0023. pdf 5. http://www. mhhe. com/business/management/thompson/11e/case/starbucks-2. html 6. http://tutor2u. net/economics/revision-notes/as-markets-price-elasticity-of-supply. html